The  Influence  of 

Accountants'  Certificates 

on  Commercial  Credit 


DEI 


• 


The  Influence  of  Accountants' 
Certificates  on  Commercial  Credit 


EDITED  BY 

A.  P.  RICHARDSON 

Secretary,  The  American  Association  of  Public  Accountants 


Price  50  Cents 


THE  AMERICAN  ASSOCIATION 
OF  PUBLIC.  ACCOUNTANTS 
55  LIBERTY  STREET,  NEW  YORK 

1913 


Copyright,  1913,  by 
The  American  Association  of  Public  Accountants 


INTRODUCTORY  NOTE 

The  contents  of  this  book  constitute  a  most  in- 
teresting addition  to  the  literature  concerning  the 
relations  between  bankers,  note  brokers  and  bor- 
rowers in  transactions  based  upon  what  is  techni- 
cally known  as  commercial  paper. 

The  opinions  of  more  than  eight  hundred  bank- 
ers, representing  banks  in  all  parts  of  the  United 
States,  are  given ;  and  the  views  expressed  are  ar- 
ranged under  various  headings  and  sub-headings 
which  make  the  information  readily  available. 

A  report  submitted  by  a  committee  of  the 
American  Bankers'  Association  in  1908  discussed 
at  length  the  desirability  of  accountants'  certifi- 
cation of  statements  presented  to  banks  by  bor- 
rowers or  by  note  brokers,  and  the  substance  of 
this  report  was  to  the  effect  that  such  certification 
should  be  encouraged  and  wherever  possible  made 
obligatory. 

Five  years  have  passed  since  the  date  of  that 
report,  and  in  that  time  a  considerable  change  has 
taken  place  in  the  dispensing  of  credit.  More  and 
more  the  tendency  spreads  to  give  preference  to 
borrowers'  statements  which  are  supported  by 
accountants'  certificates. 

iii 


iv  INTRODUCTORY  NOTE 

The  American  Association  of  Public  Account- 
ants, recognizing  the  rapidity  of  the  change,  re- 
cently appointed  a  committee  to  ascertain  bank- 
ers' opinions  at  the  present  time,  and  the  result  of 
that  investigation  is  embodied  in  this  volume. 

An  overwhelming  majority  of  replies  will  be 
found  in  favor  of  the  idea  of  certification  of  all 
statements  submitted  by  borrowers ;  and  bankers, 
in  many  cases,  go  further  than  a  mere  academic 
approval  of  such  a  proposition  and  give  sugges- 
tions and  recommendations  for  the  realization  of 
the  plan. 

Letters  from  six  of  the  leading  bankers  of  the 
country  are  given  over  their  own  signatures.  In 
other  cases  the  names  of  the  bankers  and  banks 
are  not  published,  but  the  town  or  city  in  which 
the  bank  is  situated  is  given. 

In  an  early  part  of  the  book  will  be  found  the 
entire  expression  of  opinion  which  is  opposed  to 
the  idea  of  certification  by  accountants,  and  the 
reader  can  see  at  a  glance  the  character  of  the 
opposition  and  the  reasons  alleged  by  those  few 
bankers  who  do  not  favor  the  idea. 

Then  follows  a  series  of  extracts  from  replies 
received  from  bankers  in  all  parts  of  the  country. 
This  in  turn  is  followed  by  the  replies  of  bankers 
to  specific  questions,  the  most  important  of  which, 
from  the  public  point  of  view,  is  the  actual  effect 
which  certified  statements  have  upon  the  terms, 
rates  and  general  acceptability  of  commercial 
paper. 


INTRODUCTORY  NOTE.  v 

At  the  close  of  the  book  will  be  found  several 
suggestions  by  bankers  for  the  further  better- 
ment of  credit  conditions. 

In  publishing  this  symposium  of  bankers'  opin- 
ions, the  American  Association  of  Public  Ac- 
countants is  animated  by  a  desire  to  hasten  public 
recognition  of  the  value  which  in  modern  banking 
practice  is  attached  to  the  certified  statement  of 
financial  condition. 

A.  P.  R. 
[New  York,  August  1,  1913.] 


TABLE   OF   CONTENTS 

CHAPTER  I 

Page 

Modern  credit  conditions — Report  of  committee  of 
American  Bankers'  Association  on  Certification 
of  Borrowers'  Statements — Special  committee 
appointed  by  American  Association  of  Public 
Accountants  to  investigate  conditions — Letter  ad- 
dressed to  three  thousand  five  hundred  bankers — 
Inquiry  blank  submitted  to  bankers 11 

CHAPTER  II 

Replies  received  from  eight  hundred  and  fifty  bankers 
— Classification  of  replies,  showing  great  majority 
in  favor  of  certification — Opposition  analyzed — 
Adverse  replies  quoted — Many  replies  from  bank- 
ers not  interested  in  commercial  paper 17 

CHAPTER  III 

Prominent  bankers  endorse  certification — Letters  from 

presidents    of    National    City    Bank    of    Chicago, 

Fourth  National  Bank  of  New  York,  National  City 

Bank  of  New  York,  Mercantile  Trust  Company 

vii 


viii  CONTENTS 

Page 

of  St.  Louis,  First  National  Bank  of  Chicago, 
Northwestern  National  Bank  of  Minneapolis — 
Replies  giving  personal  opinions  of  one  hundred 
and  nineteen  representative  bankers 23 

CHAPTER  IV 

Opinions  of  bankers  as  to  requiring  statements  to  be 
certified — Sentiment  in  larger  cities  most  favor- 
able to  compulsory  certification — Banks  classified 
according  to  capital  and  surplus  of  institutions — 
Opinions  of  bankers  in  many  States  showing 
strong  preference  for  certified  statements 53 

CHAPTER  V 

Opinion  of  borrowers  in  regard  to  certification — In 
larger  cities  small  objection  raised — Extracts  from 
replies — Borrowers  not  inclined  to  furnish  certified 
statements  voluntarily — Proportion  of  certified 
statements  increasing  in  all  parts  of  the  country — 
Summary  of  replies  relative  to  proportion  of  state- 
ments certified 64 

CHAPTER  VI 

Effect  of  certified  statements  upon  terms  and  interest 
rates — In  some  cases  better  rates  granted — In 
others  better  terms — General  desirability  of  paper 


CONTENTS.  ix 

Page 

almost  always  affected — Bankers'  replies,  showing 
preference  for  certified  statements — Analysis  of 
replies  classified  according  to  capital  and  surplus 
of  institutions 72 

CHAPTER  VII 

Suggestions  of  bankers  for  betterment  of  credit  rela- 
tions— Integrity  of  accountant  must  be  above 
question — Inventories  should  be  certified — En- 
dorsement of  bankers'  suggestions  by  accountants  87 

Geographical  Index 95 


The  Influence  of  Accountants'  Cer- 
tificates on  Commercial  Credit 


CHAPTER  I 

Modern  business  conditions  have  rendered  im- 
perative a  thorough  change  in  the  system  and  a 
vast  increase  in  the  machinery  for  the  extension 
of  credit.  The  exigencies  of  the  present  financial 
and  commercial  conditions  are  such  that  credit, 
not  gold,  is  the  life  of  trade.  Cash  or  cash  trans- 
actions have  taken  a  secondary  place  in  the  busi- 
ness world;  and,  accordingly,  it  is  with  the  ques- 
tion of  credit  facilities  that  the  man  of  business 
or  finance  is  most  closely  concerned. 

In  banking,  more  than  in  any  other  department 
of  activity,  the  adjustment  of  credit  is  vital,  and 
anything  which  tends  to  better  the  conditions  or 
to  perfect  the  system  is  of  direct  value  to  the 
banker  and  his  client  and  indirectly  to  the  advan- 
tage of  stockholder  and  depositor. 

For  many  years  efforts  have  been  made  to 


12  ACCOUNTANTS'  CERTIFICATES 

increase  the  protection  accorded  bankers  in  their 
extension  of  credits,  and  various  excellent  reports 
and  suggestions  have  been  made  dealing  with 
proposed  improvements;  but  there  has  been  a 
regrettable  lack  of  action. 

One  of  the  most  important  phases  of  bank  cred- 
its relates  to  the  verification  of  the  statements 
submitted  by  borrowers  in  support  of  their  so- 
called  "commercial  paper,"  whether  such  paper 
be  submitted  direct  or  through  the  agency  of  a 
note  broker. 

The  American  Bankers'  Association,  through 
one  of  its  committees,  has  given  serious  consider- 
ation to  the  question  of  borrowers'  statements, 
and  several  trenchant  recommendations  have  been 
made,  which,  if  acted  upon,  would  lead  to  the 
protection  of  the  banker,  the  assistance  of  the 
borrower  and  the  greater  stability  of  trade.  But, 
unfortunately,  the  keenness  of  competition  among 
bankers  has  precluded  the  enforcement  of  such 
regulations  as  have  been  suggested;  and  fear  of 
offending  customers  or  of  diverting  their  business 
to  other  banks  has  been  effective  in  perpetuating 
a  system,  or  lack  of  system,  which  is  universally 
recognized  as  undesirable. 

The  question  of  verification  is  one  that  appeals 
strongly  also  to  the  public  accountant,  and  the 
American  Association  of  Public  Accountants, 
the  national  organization  of  the  profession,  lately 
appointed  a  committee  to  make  investigations,  to 


AND  COMMERCIAL  CREDIT.  13 

canvass  the  leading  bankers  of  the  country,  and 
to  report  upon  the  result  of  its  inquiries. 

The  committee  addressed  three  thousand  four 
hundred  bankers  whose  institutions  have  a  capital 
of  $100,000  or  over,  in  all  States  of  the  Union, 
and  propounded  certain  questions  to  which  replies 
were  solicited.  Accompanying  this  inquiry  was 
a  letter  explaining  its  objects. 

The  letter  and  the  blank  form  circulated  among 
the  bankers  follow: 

Circular  Letter 
DEAR  SIR: 

The  American  Association  of  Public  Accountants  invites 
your  personal  consideration  of  the  question  of  the  certifi- 
cation of  borrowers'  statements  by  public  iccountants. 
With  the  idea  of  eliciting  the  opinion  of  the  leading  bank- 
ers of  the  country  upon  the  subject,  this  association  is 
addressing  a  large  number  of  bank  presidents,  and  ear- 
nestly requests  that  the  questions  enclosed  herewith  be 
answered. 

It  will  be  within  your  recollection  that  the  Committee 
on  Credit  Information  of  the  American  Bankers'  Associa- 
tion, in  its  report  of  1908,  strongly  endorsed  the  idea  of 
requiring  independent  certification  of  borrowers'  state- 
ments and  statements  presented  by  note  brokers.  The 
substance  of  the  report  is  summed  up  in  the  following 
extract. 

"They  (the  committee)  respectfully  urge  that  every  mem~ 
ber  exert  his  influence  to  have  all  paper  purchased  from 
note  brokers  presented  with  the  accompanying  statements 


14  ACCOUNTANTS'  CERTIFICATES 

audited  by  certified  public  accountants  and  note  brokers 
certificates  of  paper  outstanding  at  the  time  of  purchase. 
We  would  ask  that  the  association,  by  the 
adoption  of  this  report,  recommend  that  its  members,  in 
purchasing  commercial  paper  from  note  brokers,  give  pref- 
erence to  such  names  as  furnish  accompanying  statements 
audited  by  certified  public  accountants  and  certificates 
signed  by  the  note  brokers  of  the  amount  of  paper  out- 
standing at  the  time  of  purchase." 

In  an  address  delivered  before  the  New  Jersey  State 
Bankers'  Association  in  1905,  James  G.  Cannon  made  the 
following  statement  in  regard  to  the  question  of  compul- 
sory certification: 

"The  trend  of  every  science  is  toward  exactness.  The 
advance  to  this  point  justifies  a  further  step  in  advance. 
How  shall  this  next  step  be  taken?  By  estab- 
lishing the  custom  of  requiring  statements  of  financial 
condition  to  bear  joint  certificates  of  a  certified  public 
accountant  and  of  an  engineer. 

"The  certified  public  accountant  has  come  into  promi- 
nence within  the  past  ten  years,  and  his  profession  has 
the  guarantee  of  law  in  most  States  of  the  Union.  He 
concerns  himself  with  the  books  of  account,  and  records 
and  statements  prepared  by  him  have  the  support  of  such 
books,  and  the  banker  has  the  sense  of  security  due  to 
the  disinterested  and  impartial  nature  of  the  accountant's 
position.  He  may  be  called  the  referee  in  accountancy 
and  the  expert  on  cash  valuations. 

"In  brief,  our  next  step  is  in  the  direction  of  accuracy. 
This  is  to  be  accomplished  by  having  statements  subjected 


AND  COMMERCIAL  CREDIT.  15 

to  searching  analysis  certified  by  certified  public  account- 
ants and  engineers,  and  then  credit  will  be  extended  strictly 
on  the  merit  of  the  individual  applying  for  loans." 

David  R.  Forgan,  President  of  the  National  City  Bank, 
Chicago,  speaking  before  the  American  Association  of 
Public  Accountants,  in  September,  1912,  dealt  with  the 
relations  between  bankers  and  accountants.  He  said  in 
part: 

"In  self-protection  against  .  .  .  deception,  bankers 
have,  within  recent  years,  begun  to  demand,  or  at  least 
encourage,  the  practice  of  having  statements  for  credit 
certified  by  public  accountants.  Only  keen  competition 
prevents  this  practice  from  becoming  universal,  as  it  ought 
to  be." 

It  is  recognized  that,  as  pointed  out  by  Mr.  Forgan, 
competition  is  preventing  a  strict  adherence  to  the  recom- 
mendations of  the  American  Bankers'  Association  that 
borrowers'  statements  should  be  certified  by  certified  public 
accountants,  but  it  is  the  desire  of  the  American  Associa- 
tion of  Public  Accountants  to  ascertain  to  what  extent  the 
practice  of  requiring  independent  certification  is  increasing 
or  decreasing.  Accordingly,  you  are  requested  to  answer 
the  questions  enclosed  herewith  and  address  your  reply 
to  A.  P.  Richardson,  Secretary,  55  Liberty  Street,  New, 
York. 

Yours  very  truly, 

(Signed)  A.  P.  RICHARDSON, 

Secretary. 


16  ACCOUNTANTS'  CERTIFICATES 


Inquiry  Blank 

THE  AMERICAN  ASSOCIATION  OF  PUBLIC 
ACCOUNTANTS 

SPECIAL   COMMITTEE    ON    CREDIT   INFORMATION 

What  is  the  attitude  of  your  bank  in  regard  to  requiring 
that  statements  submitted  by  borrowers  or  note  brokers 
shall  be  certified  by  public  accountants? 

Where  this  is  required  how  is  it  regarded  by  the  bor- 
rowers of  your  bank  ? 

To  what  extent  do  you  find  that  borrowers  voluntarily 
submit  certified  statements? 

Other  things  being  equal,  do  certified  statements  have 
a  favorable  effect  upon  the  terms  and  interest  rates  granted 
by  your  bank  to  borrowers? 

Do  you  notice  an  increase  in  the  proportion  of  borrow- 
ers' statements  certified  by  public  accountants  ? 

On  the  basis  of  the  foregoing  questions  will  you  be  kind 
enough  to  give  us  the  benefit  of  your  personal  opinion 
on  the  general  question  of  certification  of  borrowers'  state- 
ments ? 

(Signed)    

President. 


Address  reply  to 

A.   P.   Richardson,  Secretary, 
55  Liberty  Street, 
New  York. 


AND  COMMERCIAL  CREDIT.  17 


CHAPTER  II 

No  better  indication  of  the  interest  taken  by 
bankers  in  this  subject  can  be  given  than  the 
ready  response  which  this  circular  and  set  of  ques- 
tions received.  Approximately  eight  hundred 
and  fifty  of  the  bankers  addressed  replied  to  the 
questions,  and  in  many  cases  did  not  content 
themselves  with  merely  formal  sets  of  replies,  but 
gave  extended  expression  of  their  opinions. 

Replies  received  have  been  classified  under  five 
headings,  Strongly  in  Favor,  Favorable,  Op- 
posed, Strongly  Opposed,  and  those  by  bank 
presidents  who  from  lack  of  experience  in  this 
matter  could  not  express  an  opinion. 

This  classification  of  replies  gives  the  following 
result: 

Strongly  in  Favor 121 

Favorable 501 

Opposed 15 

Strongly  Opposed 5 

Non-committal 202 

It  will  be  seen  by  a  glance  at  the  foregoing 
statement  that  the  amount  of  opposition  to  a 


18  ACCOUNT  ANTS '  CERTIFICATES 

proposal  for  the  requirement  of  certification  of 
borrowers'  statements  is  so  small  as  to  be  incon- 
siderable, but  in  order  that  the  nature  of  the  oppo- 
sition may  be  clearly  seen  the  following  extracts 
from  the  replies  of  opponents  are  given: 

"  Nothing  needed,  thank  you." 

"  I  think  it's  a  proposition  to  magnify  your  own  job.'* 
"  As  a  rule  borrowers  say  they  can  get  any  statement  they 
choose  to  make,  certified,  if  they  pay  the  charges." 

The  three  foregoing  are  from  banks  situated  in 
small  cities,  and  are  evidently  written  under  the 
impression  that  the  inquirer  was  asking  for 
business. 

Of  a  better  informed  character  is  a  letter  from 
a  bank  of  some  importance  in  the  Middle  West. 
In  this  the  President  states,  in  part: 

"We  have  felt  for  many  years  that  the  practice  of  loaning 
large  sums  of  money  purely  upon  the  strength  of  a  statement 
furnished  by  borrowers,  without  any  independent  verifica- 
tion or  corroboration,  is  fraught  with  more  or  less  danger; 
and  the  frequency  with  which  failures  occur,  disclosing  utter 
misrepresentation  of  facts  in  statements  previously  put  out, 
tends  to  prove  the  correctness  of  this  view  of  the  matter. 
On  the  other  hand,  frequent  single  failures  are  taking  place, 
where  the  liabilities  run  into  the  millions,  of  firms  and  cor- 
porations whose  statements  have  been  audited  and  verified 
by  so-called  public  accountants,  while  the  actual  condition 
of  affairs  bore  no  resemblance  to  the  picture  painted  by  the 


AND  COMMERCIAL  CREDIT.  19 

statement  and  the  auditors'  verification  thereof.  We,  there- 
fore,, feel  that  until  audit  companies  are  required  to  have  a 
certain  fixed  capital,  and  are  held  personally  liable  in  a  sub- 
stantial sum  for  losses  incurred  by  reason  of  their  misrepre- 
sentation of  facts,  and  are  required  to  give  bond  to  cover 
such  losses,  the  audit  will  be  of  little  practical  use.  In 
the  meantime,  bankers  and  lenders  of  money  will  continue 
to  grope  around  in  the  dark  and  make  their  own  investiga- 
tions, as  they  are  doing  now." 

Another  banker  in  the  Middle  West  writes : 

"  I  believe  that  the  business  you  are  in  is  a  legitimate  one, 
and  one  that  ought  to  bring  forth  good  results,  if  in  the 
hands  of  men  of  character  and  integrity. 

"The  most  money  this  bank  has  ever  lost  has  been  in 
loans  made  on  the  basis  of  public  accountant  statements,  or 
parties  who  claim  to  be  public  accountants  or  expert  ac- 
countants. Within  the  last  ten  years  we  have  suffered 
greatly  by  loans  on  these  statements.  In  one  instance  we 
got  about  S3  cents  on  the  dollar. 

"  It  seems  to  me  if  this  public  accountant  business  could 
be  placed  upon  some  sort  of  legal  basis,  with  penalties 
attached  for  false  and  padded  statements,  it  could  be 
made  of  great  benefit  to  banks,  but  many  of  these  state- 
ments have  been  palmed  off  on  the  public  as  being  made 
conscientiously,  when  in  fact  it  appears  that  they  were  made 
only  for  the  purpose  of  strengthening  the  parties'  credit, 
when  they  really  did  not  deserve  any  sort  of  high  rating,  and 
were  not  even  worthy  of  ordinary  credit. 

"  We  are  very  highly  prejudiced  against  these  methods  of 


20  ACCOUNTANTS'  CERTIFICATES 

loaning  money,  and  would  not  loan  money  to  anyone  on  a 
statement  made  by  an  expert  or  public  accountant,  where 
the  parties  are  not  known  to  us." 

The  foregoing  excerpts  from  letters  constitute 
the  only  strong  opposition  to  the  idea  of  requir- 
ing certification  of  borrowers'  statements,  and  it 
will  have  been  noted  that  of  these  the  only  two 
worthy  of  consideration  are  written  by  men  who 
have  been  unfortunate  in  their  experience  with 
one  or  more  public  accountants  in  their  vicinity. 

Under  the  heading  Opposed,,  the  opposition 
seems  to  be  due  generally  to  failure  to  understand 
the  purpose  of  the  questions. 

The  following  extracts  will  indicate  the  sub- 
stance of  the  arguments  against  the  plan : 

"We  think  we  know  the  value  better  than  you." 

"We  know  our  borrowers,  and  their  moral  risk  is  what 
we  consider." 

"Our  experience  has  been  that  such  statements  afford 
us  but  little  protection,  ...  If  these  certificates  could 
be  relied  upon  as  correct  or  true,  notwithstanding  the 
balance  sheet  of  the  borrower,  they  could  more  safely  be 
relied  upon." 

"We  might  place  more  credence  on  the  statement  of 
a  customer  certified  to  by  a  C.  P.  A.,  but  prefer  our  own 
examination  to  quite  a  few  statements  from  C.  P.  A.  that 
have  come  to  our  notice." 


AND  COMMERCIAL  CREDIT.  21 

"We  have  a  satisfactory  system  for  the  consideration 
of  our  borrowers'  statements.  We  are  not  interested  in 
the  question  of  certification  by  public  accountants." 

"Not  favorable." 

"We  have  no  use  for  anything  of  the  kind." 

"We  believe  it  to  be  a  good  idea  where  we  are  sure  of 
the  accountants'  honesty." 

"In   a   place   the   size   of   ,   would   not   think   a 

certified  statement  by  accountants  would  be  of  more  value 
than  would  one  of  the  people's  own  make,  as  they  are 
personally  known,  and  do  not  think  the  certification  of  the 
public  accountant  would  add  security  to  it." 

"In  the  case  of  large  corporations  or  firms  who  are 
heavy  borrowers  it  would  undoubtedly  be  very  effective, 
but  in  the  majority  of  transactions  in  a  community  like 
this  it  would,  in  my  opinion,  be  entirely  impracticable." 

"Do  not  think  it  necessary  where  your  trade  is  local 
and  the  character  of  the  borrower  is  known." 

"No  objection,  but  it  is  merely  a  matter  of  bookkeeping. 
Statements  cannot  validate  inventories  or  prices  at  which 
goods  are  held,  nor  the  character  of  the  persons  in  busi- 
ness, which  is  more  important  than  any  statement,  as  we. 
have  found  in  the  past." 


22  ACCOUNTANTS'  CERTIFICATES 

"Not  interested." 

"It  has  some  advantages,  but  is  not  of  vital  importance." 
"Nothing  doing  in  this  territory/* 

The  opposition  contained  in  the  foregoing  ex- 
tracts from  letters,  as  has  been  pointed  out,  is  due 
chiefly  to  failure  to  appreciate  the  intent  of  the 
question  asked  or  to  a  doubt  in  the  mind  of  the 
banker  as  to  the  trustworthiness  of  the  public 
accountants  with  whom  he  has  to  deal. 

The  extracts  have  been  given  at  some  length 
and  no  letters  of  opponents  have  been  omitted, 
so  that  the  opposition  may  be  seen  at  the  outset 
and  its  value  properly  estimated. 

Under  the  heading,  Non-committal,  a  large 
number  of  replies  must  be  classified.  These  re- 
plies are  almost  identical  in  phraseology.  They 
are  from  banks  whose  activities  are  confined  to 
small  towns  or  cities  and  whose  loans  are  made 
solely  to  local  business  men.  They  universally 
express  themselves  as  unable  to  form  an  opinion 
because  they  are  not  in  the  market  for  commer- 
cial paper  and  have  no  dealings  with  note  brokers. 
More  than  one  half  of  them,  however,  state  that 
on  general  principles  they  would  be  inclined 
to  favor  compulsory  certification  of  borrowers' 
statements  if  it  could  be  made  universal,  but 
qualify  this  by  saying  that  they  do  not  speak 
from  experience. 


AND  COMMERCIAL  CREDIT.  23 


CHAPTER  III 

An  overwhelming  majority  of  the  replies  in 
which  opinions  are  expressed  is  in  favor  of  requir- 
ing borrowers  and  note  brokers  submitting  com- 
mercial paper  to  present  certified  statements  of 
financial  condition.  It  has  not  been  considered 
judicious  to  specify  the  names  of  bankers  whose 
opinions  are  given  in  the  following  pages,  but  in 
order  that  there  may  be  no  question  as  to  the 
influence  and  standing  of  those  members  of  the 
banking  community  who  are  in  favor  of  this 
proposition  several  prominent  bank  presidents 
have  consented  to  give  their  views  over  their  own 
names,  and  these  signed  expressions  of  opinion 
may  fitly  take  the  lead  in  the  presentation  of  the 
affirmative  side  of  the  proposition. 

Particular  attention  is  drawn  to  the  force  and 
unanimity  of  the  following  letters : 


24  ACCOUNTANTS'  CERTIFICATES 

THE  NATIONAL  CITY  BANK 

OF  CHICAGO 
PRESIDENT'S  OFFICE.  JUNE  2,  1913. 

Mr.  A.  P.  Richardson,  Secretary, 

The  American  Association  of  Public  Accountants, 
55  Liberty  Street,  New  York  City. 

DEAR  SIR: — 

Yours  of  the  29th  ultimo  is  received:  When  we  consider 
that  more  than  half  of  the  loans  made  by  commercial 
banks  are  based  on  the  statements  of  the  borrowers,  and 
that  the  competition  between  banks  themselves,  and  be- 
tween banks  and  commercial  paper  brokers,  is,  in  ordinary 
times,  very  keen,  I  should  think  it  would  be  difficult  to  find 
a  banker  who  does  not  approve  of  the  efforts  your  Asso- 
ciation is  making  to  have  all  borrowers'  statements  certi- 
fied by  public  accountants.  This  is  one  of  those  happy 
cases  which  combines  with  the  furtherance  of  your  own 
interests  as  accountants  the  purifying  and  strengthening 
of  the  entire  system  of  credits  through  which  nearly  all 
modern  business  is  transacted. 

I  hope,  therefore,  you  will  continue  your  good  work 
until  it  is  as  common  to  have  borrowers'  statements  prop- 
erly certified  as  it  is  now  to  have  a  title  examined  before 
purchasing  property. 

Yours  very  truly, 

(Signed)  DAVID  R.  FORGAN. 


AND  COMMERCIAL  CREDIT.  25 

THE  FOURTH  NATIONAL  BANK 
OF  THE  CITY  OF  NEW  YORK 

MAY  29,   1913. 
Mr.  A.  P.  Richardson,  Secretary, 

American  Association  of  Public  Accountants, 
55  Liberty  Street,  New  York  City. 

DEAR  SIR: — 

Referring  to  your  letter  of  February  20th,  respecting 
the  certification  of  borrowers'  statements  by  public  account- 
ants, we  strongly  advocate  and  prefer  to  buy  the  paper 
of  those  concerns  whose  accounts  are  audited  by  established 
firms  of  accountants. 

We  find  that  where  this  is  required  the  suggestion  is 
generally  well  accepted  and  acted  upon. 

It  is  difficult  to  state  to  what  extent  borrowers  volun- 
tarily submit  certified  statements,  but  a  large  number  of 
statements  received  are  certified,  and  the  percentage  is 
constantly  increasing. 

The  matter  of  certification  or  non-certification  has  not 
reached  a  point  with  us  where  it  affects  the  rates  charged. 

The  question  of  increase  or  decrease  in  the  proportion 
of  certified  statements  of  borrowers  is  covered,  we  think, 
by  our  statement  that  the  percentage  is  constantly  increas- 
ing. 

It  is  our  belief  that  the  time  is  not  far  distant  when 
the  demand  for  an  audit  of  all  statements  by  certified 
public  accountants  of  established  reputation  will  be  prac- 
tically universal.  Very  truly  yours, 

(Signed)  J.  G.  CANNON, 

President. 


26  ACCOUNT  ANTS '  CERTIFICATES 


THE  NATIONAL  CITY  BANK 

OF    NEW    YORK 

NEW  YORK,  March  6,  1913. 

[COPY] 

THE    AMERICAN    ASSOCIATION    OF    PUBLIC    ACCOUNTANTS, 

SPECIAL  COMMITTEE  ON  CREDIT 

INFORMATION 

Inquiry  Blank 
No.  1899. 

Q.  What  is  the  attitude  of  your  bank  in  regard  to 
requiring  that  statements  submitted  by  borrowers  or  note 
brokers  shall  be  certified  by  public  accountants? 

A.  We  prefer,  in  all  cases,  to  have  certified  state- 
ments, but  only  insist  upon  it  in  cases  where  we  feel  the 
indebtedness  is  becoming  disproportionately  heavy  or  we 
have  reason  to  suspect  some  irregularity.  In  all  such 
cases  we  do  insist. 

Q.  Where  this  is  required  how  is  it  regarded  by  the 
borrowers  of  your  bank? 

A.  As  a  rule,  the  borrowers  are  willing  to  submit  their 
business  to  audit  and  furnish  certified  statements  when 
we  insist  upon  it. 


AND  COMMERCIAL  CREDIT.  27 

Q.  To  what  extent  do  you  find  that  borrowers  volun- 
tarily submit  certified  statements? 

A.  Not  to  any  considerable  extent,  but  the  practice 
is  increasing.  I  should  say  probably  not  more  than  5%  of 
the  whole  furnish  certified  statements  voluntarily. 

Q.  Other  things  being  equal,  do  certified  statements 
have  a  favorable  effect  upon  the  terms  and  interest  rates 
granted  by  your  bank  to  borrowers? 

A.  Certified  statements,  where  they  exhibit  sound  and 
solvent  conditions,  have  a  favorable  effect  upon  the  amount 
of  loans  granted  to  borrowers,  but  have  no  effect  on  interest 
rates.  We  do  not  lend  in  any  case  unless  we  believe  the 
borrower  is  good,  and  being  good  he  is  entitled  to  the 
same  rate  that  any  other  good  borrower  would  receive, 
whether  furnishing  a  certified  statement  or  not. 

Q.  Do  you  notice  an  increase  or  decrease  in  the  pro- 
portion of  borrowers'  statements  certified  by  public 
accountants  ? 

A.  In  our  observation,  the  proportion  of  borrowers' 
statements  certified  by  public  accountants  is  increasing 
slowly.  We  believe  the  practice  eventually  will  become 
nearly  universal. 

Q.  On  the  basis  of  the  foregoing  questions,  will  you 
be  kind  enough  to  give  us  the  benefit  of  your  personal 
opinion  on  the  general  question  of  certification  of  borrow- 
ers' statements? 


28  ACCOUNTANTS'  CERTIFICATES 

A.  Our  opinion  of  the  general  question  of  certification 
of  statements  is  that  their  usefulness  and  reliability  have, 
in  too  many  cases,  been  brought  into  question  by  reason 
either  of  inefficient,  incompetent  or  careless  work  on  the 
part  of  accountants.  Dispensers  of  credit  have  often 
been  deceived  in  this  way,  and  it  should  be  the  aim  of 
members  of  your  association  to  be  much  more  careful,  not 
only  in  investigation  but  in  general  efficiency  and  thor- 
oughness, than  has  been  the  case  heretofore. 

(Signed)   Jos.  T.  TALBERT, 

Vice-President. 


MERCANTILE  TRUST  COMPANY 

SAINT  LOUIS 

JUNE  3,  1913. 
Mr.  A.  P.  Richardson,  Secretary, 

American  Association  of  Public  Accountants, 
55  Liberty  Street,  New  York  City. 

DEAR  SIR: — 

I  am  most  heartily  in  favor  of  all  firms  and  corpora- 
tions that  borrow  without  collateral  filing  with  banks  and 
trust  companies  from  which  they  borrow  statements  of 
their  business  certified  to  by  public  accountants. 

We  have  several  customers  of  that  kind  now,  and  not 
only  feel  more  comfortable  with  their  business  but  actu- 
ally do  give  them  a  larger  ratio  of  credit  and  better  rate 
of  discount  by  reason  of  the  fact  that  we  know  their 
statement  is  unquestionably  true. 


AND  COMMERCIAL  CREDIT.  29 

Every  bank  and  trust  company  of  the  country  is  obliged 
to  undergo  expert  examination  at  least  once  (and  in  many 
instances  three  times)  each  year.  Their  officers  are  obliged 
to  make  sworn  affidavit  of  the  correctness  of  the  statement, 
the  banking  laws  making  it  a  penal  offense  if  they  swear 
falsely. 

Why  should  not  the  banking  fraternity  not  only  expect, 
but  exact  and  demand,  the  same  examination  of  those  to 
whom  they  lend  their  money  without  collateral? 

I  hope  you  will  push  the  good  work  until  it  becomes 
the  universal  custom  of  all  borrowers,  large  or  small,  to 
have  their  books  and  accounts  examined  and  certified  to 
by  public  accountants. 

Yours  respectfully, 

(Signed)   FESTUS  J.  WADE, 

President. 


THE  FIRST  NATIONAL  BANK 

CHICAGO 

JUNE  4,  1913. 
Mr.  A.  P.  Richardson,  Secretary, 

American  Association  of  Public  Accountants, 
55  Liberty  Street,  New  York  City. 

DEAR  SIR: — 

I  have  your  favor  of  29th  ultimo. 

You  can  use  the  following  as  a  statement  from  me  in 
regard  to  the  desirability  of  having  certified  statements 
from  borrowers: 


30  ACCOUNTANTS'  CERTIFICATES 

The  movement  among  bankers  to  encourage,  if  not 
demand,  that  statements  made  by  borrowers  as  a  basis 
of  credit  should  be  verified  by  an  audit  of  their  books 
and  certified  by  public  accountants  has  my  heartiest  sym- 
pathy and  support. 

No  longer  is  it  regarded  as  discreditable,  but  the  reverse, 
to  furnish  such  statements.  Many  of  our  best  borrowers 
voluntarily  supply  them,  and  their  number  is  constantly 
increasing.  For  their  own  protection  and  satisfaction  they 
regard  an  annual  audit  necessary,  and  the  certified  balance 
sheet  furnished  their  bankers  becomes  a  source  of  pride 
to  them. 

Very  truly  yours, 

(Signed)  JAS.  B.  FORGAN. 


THE  NORTHWESTERN  NATIONAL  BANK 

MINNEAPOLIS 

JUNE  6th,  1913. 
Mr.  A.  P.  Richardson,  Secretary, 

The  American  Association  of  Public  Accountants, 
55  Liberty  Street,  New  York,  N.  Y. 

DEAR  SIR: — 

Replying  to  your  favor  of  May  29th,  will  say  that  I 
am  a  firm  believer  in  the  audit  by  certified  public  account- 
ants of  books  and  business  of  borrowers,  whether  paper  is 
taken  direct  by  the  bank  or  through  brokers.  Of  course, 
this  check  is  not  absolute,  but  it  is  an  additional  safeguard 


AND  COMMERCIAL  CREDIT.  31 

to  the  lenders  of  money.     This  practice  is  generally  fol- 
lowed here  with  very  general  satisfaction. 
Yours  very  truly, 

(Signed)   E.  W.  DECKER, 

President. 


In  reply  to  the  general  question  which  comes 
last  on  the  inquiry  blank  the  replies  have  been 
most  satisfactory  and  convincing. 

The  question  reads : 

"On  the  basis  of  the  foregoing  questions,  will  you  be 
kind  enough  to  give  us  the  benefit  of  your  personal  opinion 
on  the  general  question  of  certification  of  borrowers'  state- ' 
ments  ?" 

Replies  from  which  quotations  will  be  made 
represent  a  considerable  diversity  of  approach  to 
the  question  but  are  unanimous  in  the  final  view. 
It  is  not  practicable  to  give  the  personal  source 
of  these  opinions,  but  at  the  head  of  each  will  be 
found  the  name  of  the  city  from  which  the  reply 
emanates : 

Omaha,  Neb. 

"I  believe  it  would  be  a  great  help  to  banks,  and  our 
losses  would  be  much  less,  by  requiring  a  public  account- 
ant's statement,  and  I  personally  will  say  that  it  saved 
our  bank  last  year  about  $40,000  by  making  the  require- 
ment of  a  borrower  who  afterwards  declined  to  furnish 


32  ACCOUNTANTS'  CERTIFICATES 

it,  and  we  collected  and  other  banks  took  on  the  account 
and  made  the  loss." 

St.  Louis,  Mo. 

"During  this  year  we  have  found  that  three  of  our 
borrowers  falsified  their  statements.  The  net  loss  to  us 
was  about  $20,000.  Certified  statements  would  have  saved 
us  that  sum.  We  strongly  favor  all  statements  being 
signed." 

Sacramento,  Cal. 

"I  unqualifiedly  endorse  the  idea,  and  borrowers  whose 
books  and  accounts  are  all  right  should  have  no  hesitancy 
in  accepting  such  a  condition  as  the  basis  of  asking  for 
the  accommodation  they  require." 

New  York  City. 

"I  regard  such  a  practice  as  beneficial  to  the  highest 
degree  both  to  the  lender  and  the  borrower.  To  the 
lender  for  obvious  reasons,  and  to  the  borrower  because 
of  the  increase  in  confidence  of  his  creditors." 

"We  urge  and  would  gladly  join  any  movement  looking 
to  the  unanimous  adoption  of  such  a  rule  by  all  financial 
institutions." 

Cleveland,  0. 

"We  consider  certified  statements  a  great  aid  in  intelli- 
gently extending  credit,  and  firmly  believe  that  all  banks 
should  co-operate  in  requiring  their  large  borrowers  to 
furnish  such  statements." 


AND  COMMERCIAL  CREDIT.  33 

Syracuse,  N.  Y. 

"The  practice  of  auditing  statements  by  expert  account- 
ants will,  no  doubt,  soon  be  so  universal  on  account  of  the 
benefit  to  the  borrower  that  there  will  be  a  temptation  to 
get  audits  that  are  not  as  strict  and  impartial  as  they 
should  be.  I  trust  your  Association  realizes  the  great 
harm  to  be  done  to  your  profession  if  discredit  were  thrown 
upon  audit  statements  by  the  fact  that  auditors  could  not 
be  thoroughly  depended  upon  by  persons  giving  credit 
to  their  clients." 

Cincinnati,  0. 

"We  believe  all  large  concerns  should  have  their  books 
audited  at  least  twice  a  year  by  certified  public  account- 
ants." 

Philadelphia,  Pa. 

"The  gradually  extending  ramifications  of  our  financial 
system,  involving  the  necessity  of  granting  credits  at  long 
range,  without  personal  touch  with  the  borrower,  make 
audited  statements  a  necessity  to  the  large  bank,  and  the 
borrowing  margins  of  profit  in  manufacturing  and  mercan- 
tile lines  make  exact  accounting  and  the  advice  thereon — 
which  an  expert  alone  can  furnish — essential  in  modern 
business  and  banking  practice." 

"Needless  to  say  we  are  highly  in  favor  of  the  certifi- 
cation of  borrowers'  statements,  but  feel  that  perhaps  the 
accountants,  rather  than  the  banks,  are  in  a  better  position 
to  further  the  movement.  Our  only  regret  is  that  the 
tendency  toward  this  practice  is  not  more  marked.  How- 


34  ACCOUNTANTS'  CERTIFICATES 

ever,  we  feel  that  an  accountant  should  not  merely  certify 
that  the  balance  sheet  is  in  agreement  with  the  books,  but 
should  state  that  the  financial  statement  reflects  the  true 
condition  of  the  concern  and  sets  forth  all  debts  of  every 
character,  including  indirect  and  contingent  liabilities  on 
account  of  endorsements,  guarantees,  etc." 

Patvtucket,  R.  I. 

"We  give  preference,  in  buying  brokers'  paper,  to  state- 
ments certified  to  by  public  accountants,  particularly  those 
accountants  well  and  favorably  known  to  us.  We  think 
membership  in  your  association  should  give  tone  and  stand- 
ing to  its  members,  and  a  list  of  members  should  be  placed 
with  the  banks  and  all  others  who  are  apt  to  use  such 
service.'* 

Nashville,  Tenn. 

"A  certification  of  borrowers'  statements  is  always  to 
be  desired;  an  independent  audit  must,  in  the  very  nature 
of  things,  be  impartial,  and  more  satisfactory  to  the  lender 
of  money." 

Seattle,  Wash. 

"I  have  for  the  past  several  years  been  an  advocate  for 
and  a  firm  believer  in  the  policy  that  all  commercial  paper 
brokers  should  be  required  to  exact  from  their  patrons 
from  whom  they  are  taking  paper  for  sale  and  to  banks 
throughout  the  country,  at  least  an  annual,  if  not  a  semi- 
annual, audit,  inventory  and  report  by  well  established 
certified  public  accountants  of  known  standing  and  reli- 
ability, believing  such  a  policy  would  be  a  safeguard  to 
the  interests  of  the  banks." 


AND  COMMERCIAL  CREDIT.  35 

Denison,  Tex. 

"It  is  a  step  in  the  right  direction.  The  time  may 
come  when  every  prominent  firm  of  note  brokers  will  be 
compelled  not  only  to  require  that  statements  of  their  cli- 
ents be  certified  by  a  public  accountant,  but,  as  Mr.  Cannon 
has  suggested,  the  certificate  of  property  and  of  value 
by  an  engineer  or  some  one  qualified  to  pass  upon  the 
physical  properties  will  be  required." 

Spokane,  Wash. 

"We  have  been  very  keen  to  have  our  customers'  state- 
ments audited  by  a  certified  public  accountant,  and  it  is 
gratifying  to  note  that  they  are  inclining  that  way  more 
and  more;  in  fact,  it  is  getting  to  be  accepted  as  a  neces- 
sity. It  is  only  recently  that  one  of  our  customers  brought 
in  his  statement  properly  certified,  and  said,  'I  was  "hot" 
when  you  insisted  two  or  three  years  ago  on  having  our 
accounts  properly  certified,  but  now  I  would  not  be  without 
it  under  any  condition.  The  accountants  have  given  me 
a  better  insight  into  my  business  than  I  ever  had  before, 
and  they  have  been  constructive  about  it,  as  they  have 
pointed  out  how  we  can  save  money  and  make  money.' 
I  think  this  is  the  unexpressed  opinion  of  a  number  of 
others  that  we  have  been  instrumental  in  getting  to  adopt 
the  system  of  being  properly  examined." 

Madison,  Wis. 

"We  would  much  prefer,  in  buying  commercial  paper, 
to  have  the  paper  certified  by  public  accountants  of  known 
character  and  standing.  The  question  of  the  borrower's 
statement  is  one  of  the  strong  elements  of  danger  in  the 
purchase  or  acquisition  of  commercial  paper." 


36  ACCOUNTANTS'  CERTIFICATES 

San  Francisco,  Cat. 

"We  think  that  it  will  not  be  long  before  it  will  be 
considered  a  necessity  for  borrowers  either  to  submit  a 
statement  by  public  accountant  or  by  the  accountant  that 
the  bank  suggests." 

Denver,  Colo. 

"I  hope  that  the  day  is  not  far  distant  when  inde- 
pendent certification  will  be  required." 

New  Milford,  Conn. 

"If  it  were  not  for  keen  competition  it  would  undoubt- 
edly become  a  universal  rule  among  bankers." 

Winsted,  Conn. 

"We  believe  that  the  adoption  by  borrowers  of  certified 
statements  of  their  financial  condition,  and  the  enactment 
by  the  State  legislatures  of  a  uniform  false  statement  law 
with  a  heavy  penalty  for  violation,  would  be  a  distinct 
advantage  to  the  credit  grantor." 

Utica,  N.  Y. 

"We  have  long  been  in  favor  of  borrowers'  statements, 
and  the  writer  introduced,  a  number  of  years  ago,  a  form 
of  statement  blank  in  use  in  this  section  of  the  State. 
These  statements  should  be  prepared  by  certified  account- 
ants, or  at  least  followed  up  by  such  accountants'  exam- 
ination and  verification.  This,  in  my  opinion,  is  one  of 
the  important  things  to  protect  the  bank  in  granting 
loans." 


AND  COMMERCIAL  CREDIT.  37 

Los  Angeles,  Cal. 

"We  are  heartily  in  favor  of  commercial  houses  using 
public  accountants  to  make  up  their  credit  statements,  as 
it  gives  us  more  confidence  in  the  figures  submitted,  and 
they  are  usually  able  to  make  up  a  more  intelligible  state- 
ment." 

Merced,  Cal. 

"We  heartily  favor  it.  Have  just  suffered  a  loss  on 
account  of  a  false  statement  made  by  a  merchant." 

Pomona,  Cal. 

"The  average  individual  is  inclined  to  overestimate  his 
values.  If  certification  of  reliable  accountants  was  re- 
quired it  would  have  a  tendency  to  'keep  them  nearer  the 
earth.'  " 

San  Francisco,  Cal. 

"Heartily  in  favor  of  it  and  am  doing  all  in  my  power 
to  make  it  general." 

Denver,  Colo. 

"It  would  have  a  tendency  to  facilitate  extension  of 
credit  in  proper  cases." 

Hartford,  Conn. 

"We  firmly  believe  it  to  be  a  step  in  the  right  direction." 

Naugatuck,  Conn. 

"It's  the  only  true  basis  for  credits." 


38  ACCOUNTANTS'  CERTIFICATES 

Atlanta,  Ga. 

"We  always  prefer  statements  certified  by  a  public 
accountant,  and  when  taking  on  a  substantial  commitment, 
in  which  the  borrowers'  responsibility  is  an  important  fac- 
tor, it  is  our  custom  to  require  an  audit." 

Macon,  Ga. 

"I  think  every  money-lending  institution  should  protect 
itself  by  requiring  all  the  light  possible." 

Cairo,  III. 

"Think  all  borrowers  of  large  amounts  should  make 
statements  certified  by  a  reputable  C.  P.  A." 

Chicago,  III. 

"I  should  like  to  have  them  all  certified,  but  it  is  not 
practised,  as  sentiment  and  personal  feelings  are  still 
strong  elements  in  the  relations  existing  between  borrowers 
and  lenders." 


"We  are  heartily  in  favor  of  it,  and  welcome  any  move 
in  the  direction  of  encouraging  this  practice.  .  .  .  We 
purchase  more  or  less  commercial  paper  through  note 
brokers,  and  we  often  take  pleasure  in  remarking  to  the 
broker  that  the  statement  is  certified  by  some  well-known 
firm  of  accountants.  I,  for  one,  do  not  feel  that  any  firm 
or  corporation  or  business  house  has  any  right  to  offer 
its  paper  in  the  open  market  unless  a  statement  is  sub- 
mitted, and  many  a  name  have  I  refused  to  purchase  for 
our  bank  because  of  the  lack  of  a  statement." 


AND  COMMERCIAL  CREDIT.  33 

"They  should  be  universal  in  cases  where  the  paper 
is  offered  through  brokers,  and  the  personality  of  the 
borrower  is  therefore  unknown." 

"Certification  of  statements  by  certified  public  account- 
ants of  high  standing  is  undoubtedly  advisable,  and  I  wish 
that  it  were  customary  for  banks  to  insist  upon  such  certi- 
fied statements.  I  am  a  great  believer  in  the  good  work 
of  certified  accountants,  not  only  for  mercantile  and  manu- 
facturing concerns,  but  for  banks  and  public  corporations 
which  ask  credit  in  any  way  from  the  public." 

"Very  heartily  in  favor  of  it,  but  there  are  a  number 
of  poor  accountants.  These  you  should  eliminate  from 
your  ranks." 

Decatur,  III. 

"We  would  much  prefer  to  have  all  borrowers  have 
their  statements  certified  to  by  public  accountants,  which 
we  believe  would  reduce  the  interest  rate  to  such  bor- 
rowers." 

Joliet,  III. 

"We  would  appreciate  it  very  much  could  we  have  a 
trustworthy  statement  of  every  borrower's  business." 

Lincoln,  III. 

"I  believe  it  eminently  proper  and  good  business,  as 
we  have  had  too  much  wildcat  commercial  paper  offered 
by  brokers,  who  had  nothing  but  personal  gain,  in  the 
form  of  commission,  in  view." 


40  ACCOUNTANTS'  CERTIFICATES 

National  Stock  Yards,  III. 
"Believe  in  it  thoroughly." 

Evansville,  Ind. 

"Good  for  both  borrower  and  lender,  and  should  be  a 
requirement  when  lending  money." 

Indianapolis,  Ind. 

"Certification  of  borrowers'  statements  as  shown  by 
their  books  is  not  sufficient.  There  should  be  an  audit 
of  inventories  and  independent  certification  of  accounts 
receivable.  When  brokers  sell  paper  of  borrowers  they, 
the  brokers,  should  be  required  to  certify  as  to  amount 
issued  and  sold." 

New  Albany,  Ind. 

"We  heartily  endorse  and  favor  the  plan.  Believe  that 
the  prejudice  in  certain  quarters  can  be  speedily  overcome 
by  co-operation  among  bankers." 

Boone,  Iowa. 

"Should  be  required,  and  banks  should  decline  advances 
except  upon  such  statements." 

Great  Bend,  Kan. 

"We  deem  it  of  the  highest  importance,  and  shall  not 
become  purchasers  of  commercial  paper  until  it  comes 
into  general  vogue." 

Louisville,  Ky. 

"We  would  be  glad  to  have  this  system  a  requirement 
by  the  banks  of  our  country.  It  would  be  a  great  comfort 


AND  COMMERCIAL  CREDIT.  41 

to  the  banks  to  have  such  statements.  They  would  feel 
a  greater  confidence  in  extending  credit,  and  we  would 
most  heartily  approve  any  movement  to  that  end." 

"If  we  dealt  in  paper  of  this  kind  we  unquestionably 
would  favor  your  proposition.  We  think  it  would  add  very 
materially  to  the  strength  of  the  paper  and  be  a  very  great 
protection,  worth  much  more  than  it  costs,  to  the  banks 
and  institutions  purchasing  such  paper." 

Shreveport,  La. 

"It  is  my  opinion  that  the  time  is  not  far  distant  when 
country  banks  buying  commercial  paper  wilj  insist  on 
certified  statements." 

Portland,  Me. 

"Would  be  glad  to  see  a  rule  adopted  universally  by 
brokers  not  to  offer,  and  by  banks  not  to  buy,  paper  unac- 
companied by  certified  statements." 

Baltimore,  Md. 

"It  is  most  desirable  to  the  honest  borrower  and  to  the 
lender." 

"Whenever  the  faintest  shadow  of  doubt  arises  as  to 
the  financial  status  of  any  of  our  borrowers  we  immedi- 
ately request  them  to  have  an  audit  made  by  certified 
public  accountants.  I  am  in  favor  of  certification  of  bor- 
rowers' statements  as  one  of  the  surest  means  of  protecting 
banks  against  deception." 


42  ACCOUNTANTS'  CERTIFICATES 

"Believe  it  would  be  a  great  advantage.  Have  always 
advocated  examination  by  expert  accountants  in  any  com- 
pany in  which  I  personally  am  interested." 

Boston,  Mass. 

"We  prefer  such  statements,  but  do  not  insist  on  them 
in  every  case  with  our  patrons." 

"Should  be  certified,  so  dependence  can  be  placed  upon 
them." 

"Hope  in  a  very  short  time  that  banks  will  all  insist 
on  it." 

Lowell,  Mass. 

"In  line  of  safeguarding  banks  and  investors  would 
help  some  corporations  to  understand  their  own  true  con- 
dition." 

Peabody,  Mass. 

"Personally  I  strongly  favor  the  plan  and  am  doing 
what  I  can  to  hasten  the  day — which  is  surely  coming — 
when  all  large  borrowers  will  furnish  certified  statements." 

West  Newton,  Mass. 

"We  believe  that  the  practice  is  becoming  much  more 
general,  and  will,  as  it  should,  eventually  become  universal. 
This  cannot,  in  our  opinion,  fail  to  have  a  wholesome  effect 
on  business  in  general." 

Battle  Creek,  Mich. 

"Every  statement  submitted  by  a  note  broker  should 
be  on  the  authority  of  certified  accountants,  with  an  affi- 


AND  COMMERCIAL  CREDIT.  43 

davit  of  two  leading  officers  of  the  company  that  the 
figures  submitted  and  the  property  in  the  various  ware- 
houses throughout  the  country  was  absolutely  true  accord- 
ing to  their  best  knowledge  and  belief.  We  are  heartily 
in  favor  of  your  system." 

Duluth,  Minn. 

"The  time  is  not  far  away  when  all  large  borrowers 
must  furnish  certified  statements  of  accounts  and  verified 
inventories." 

St.  Paul,  Minn. 

"I  am  strongly  in  favor  of  certification  of  borrowers' 
statements,  and  am  impressed  with  the  fact  that  they 
would  be  much  more  valuable  to  the  lender  if  an  appraise- 
ment or  inventory  by  experts  accompanied  the  statement." 

Gulf  port,  Miss. 

"We  think  it  is  an  absolutely  good  thing,  and  believe 
that  eventually  it  will  be  required  generally  by  the  banks 
as  they  gradually  get  their  customers  educated  to  the 
fairness  and  necessity  of  it." 

Kansas  City,  Mo. 

"We  think  it  certainly  must  come,  and  to  our  mind 
the  sooner  the  better." 

"We  would  be  glad  to  have  certified  statements  from 
every  borrower,  no  matter  how  small  the  business.  Bor- 
rower often  does  not  know  really  how  his  business  is 
going  until  such  statement  is  made  to  him." 


44  ACCOUNTANTS '  CERTIFICATES 

"When  we  receive  a  statement  certified  by  competent 
accountants  we  deal  with  greater  confidence  with  the  bor- 
rower who  submits  such  statement.  We  believe,  therefore, 
that  the  custom  of  submitting  such  statements  will  grow." 

St.  Louis,  Mo. 

"In  my  opinion  it  is  very  desirable,  and  to  the  highest 
development  of  credit  it  is  essential." 

Miles  City,  Mont. 

"I  have  always  believed  we  should  have  them  [certified 
statements],  and  especially  so  of  late  years,  as  the  amount 
of  commercial  paper  is  increasing  so  rapidly." 

Omaha,  Neb. 

"We  believe  the  practice  should  be  encouraged,  and 
the  writer  thinks  that  an  amendment  to  the  banking  act 
requiring  it  for  all  paper  taken  within  certain  fixed  limits 
would  be  of  more  service  to  the  public  than  constant  bank 
examinations." 

"In  connection  with  the  purchase  of  commercial  paper 
we  lean  by  preference  very  strongly  toward  the  paper  of 
those  concerns  that  do  furnish  statements  certified  by 
public  accountants,  and  endeavor  to  use  what  little  influ- 
ence we  may  have  in  increasing  the  custom  of  submitting 
such  statements." 

Newark,  N.  J. 

"Recommend  it  highly." 


AND  COMMERCIAL  CREDIT.  45 

Buffalo,  N.  Y. 

"We  believe  in  the  plan.  A  bank  cannot  have  too  much 
information  on  any  name.  An  audit  by  a  good  firm  often 
brings  out  things  not  shown  by  a  mere  statement." 

Mount  Vernon,  N.  Y. 

"Certification  by  public  accountants  should  become 
general." 

New  York  City. 

"We  prefer  to  have  certified  statements  whenever  we 
can  get  them." 

"We  do  not  insist  on  it,  but  would  like  to  have  it  become 
a  universal  custom.  Very  desirable." 

"We  believe  that  borrowers  who  offer  their  paper 
through  note  brokers  should  have  their  original  statement 
certified  to  by  public  accountants,  and  the  copies  submitted 
to  intending  purchasers  should  state  that  fact. 

"Except  where  we  know  the  borrowers  personally,  we 
consider  certified  statements  essential." 

"We  favor  certification  of  borrowers'  statements  by 
reliable  accountants." 

"We  would  be  willing  to  give  you  our  hearty  co-opera- 
tion in  this  matter,  but  are  of  the  opinion  that  unless  all 
the  banks  come  to  a  mutual  understanding  in  this  respect 
it  will  be  almost  impossible  to  obtain  the  desired  results." 


46  ACCOUNTANTS'  CERTIFICATES 

"Will  you  allow  the  writer  to  wish  you  hearty  good 
luck  in  your  endeavor  to  bring  before  banks  the  importance 
of  co-operating  in  the  requirement  of  the  certification  of 
the  statements  rendered  by  borrowers?" 

"It  would  be  desirable  if  such  a  practice  could  be  put 
into  general  use." 

"If  the  size  of  the  borrower,  financially,  warrants,  cer- 
tified statements  should  be  insisted  upon.  We  recommend 
our  customers  to  do  so." 

"I  believe  that  the  certification  should  be  more  specific 
than  at  present,  and  tell  just  what  the  accountant  has 
done  besides  simply  auditing  the  books." 

"It  is  a  step  in  the  right  direction." 

"In  the  case  of  outside  notes  offered  by  brokers,  in 
which  we  have  no  sentimental  interest,  we  are  very  apt  to 
look  for  the  accountant's  certificate  before  considering 
the  figures.  If  the  large  paper-buying  banks  would  co- 
operate with  note  brokers  in  requiring  certified  statements 
from  all  concerns  whose  paper  they  handle  losses  would 
be  minimized  and  commercial  paper  would  find  a  readier 
market." 

Ogdensburg,  N.  Y. 

"I  cannot  commend  too  strongly  the  suggestion  which 
prompted  the  enclosed  inquiries.  The  benefit  to  both 
borrower  and  buyer  is  apparent,  and  need  not  be  pointed 
out  to  either." 


AND  COMMERCIAL  CREDIT.  47 

Ossining,  N.  Y. 

"We  think  that  the  idea  is  a  very  good  one,  one  that 
would  work  to  the  advantage  of  money  lenders,  without 
a  doubt." 

Rochester,  N.  Y. 

"We  should  like  to  see  the  custom  become  general,  the 
accountant,  of  course,  being  capable  and  reliable." 

Asheville,  N.   C. 

"Have  always  urged  it  in  connection  with  the  enter- 
prises in  which  I  have  been  interested,  and  I  feel  that 
nothing  else  has  done  so  much  to  establish  for  them  a 
high  credit  standing  and  low  interest  rates.  It  has  been 
my  desire  and  purpose  to  give  public  utterance  to  my  views 
on  this  subject  at  some  time  in  the  near  future." 

Charlotte,  N.  C. 

"We  endorse  it  heartily." 

Fargo,  N.  D. 

"We  approve  the  idea,  and  hope  for  its  general  adop- 
tion by  all  borrowers." 

Dayton,  0. 

"Certified  statements  are  much  more  satisfactory  and 
convincing  than  the  ordinary  kind." 

Findlay,  0. 

"We  think  it  is  growing  each  year,  and  eventually  may 
become  universal." 


48  ACCOUNTANTS'  CERTIFICATES 

Sandusky,  0. 

"I  believe  that  good  banking  really  demands  such  cer- 
tification of  all  statements." 

Springfield,  0. 

"If  all  would  see  the  advantage  to  themselves  it  would 
be  a  good  thing,  but  that  is  a  matter  of  education." 

Youngstown,  0. 

"We  very  much  favor  its  uniform  adoption,  especially 
with  brokers'  paper." 

Muskogee,  Okla. 

"We  favor  the  certification  of  borrowers'  statements." 

Altoona,  Pa. 

"For  the  protection  of  our  depositors  and  stockhold- 
ers I  advocate  requiring  certified  statements;  then  loans 
can  be  selected  on  merchandise,  manufactured  supplies, 
that  are  classed  as  necessities,  and  are  always  in  demand." 

Bangor,  Pa. 

"I  believe  it  would  be  an  exceptionally  good  thing  for 
banks  if  they  could,  in  every  case,  require  such  statement 
before  extension  of  credit." 

Donora,  Pa. 

"This  is  a  question  which  must  be  decided  on  the  merits 
of  each  individual  application;  in  our  case,  we  have  a 
direct  knowledge  of  the  habits  of  our  borrowers,  in  almost 
every  case;  such  a  knowledge  would,  of  course,  be  out 


AND  COMMERCIAL  CREDIT.  49 

of  the  question  were  we  a  large  institution,  or  located  in 
a  city.  As  a  general  proposition,  I  feel  safe  in  saying 
that  if  a  certified  statement  were  required  in  every  case 
the  prospective  borrower  would  have  no  reason  to  object 
to  the  requirement  if  he  were  worthy  of  having  the  accom- 
modation extended  to  him,  while  the  undesirable  applicant 
would  be  deterred  from  taking  the  time  of  the  banks' 
officers  by  a  knowledge  of  the  fact  that  he  would  be  re- 
quired to  submit  to  a  test  which  he  could  not  hope  to 
satisfy.  If  this  be  true,  the  interests  of  the  banker  and 
of  the  borrower  who  is  worthy  of  credit  are  protected 
when  a  certified  statement  is  required." 

Du  Bois,  Pa. 

"Good  thing,  of  course." 

Lancaster,  Pa. 

"We  are  strongly  in  favor  of  statements  made  by 
public  accountants  for  firms  borrowing  through  note 
brokers.  .  .  .  We  think  that  large  business  firms 
should  issue  certified  statements,  and  note  brokers  should 
not  handle  paper  not  so  certified." 

Lemoyne,  Pa. 

"We  should  like  to  see  the  plan  become  general." 

Lewistown,  Pa. 

"Statements    should    be    submitted    regularly,    and    the 
banks  cheerfully  informed,  for  the  borrowers'  own  benefit." 


50  ACCOUNTANTS'  CERTIFICATES 

Philadelphia,  Pa. 

"The  certified  statement  of  some  reliable  certified  ac- 
countant should  be  an  absolute  essential  by  all  banks  prior 
to  consideration  of  any  credits." 

"We  deem  them  a  future  necessity." 

Pittsburgh,  Pa. 

"In  favor  of  it,  and  think  that  all  bankers  should 
encourage  the  practice." 

"Every  account  of  any  consequence  should  be  certified 
by  public  accountants,  and  all  receivables  should  be  item- 
ized. This  statement  is  based  on  past  experience." 

Reading,  Pa. 

"We  have  more  confidence  in  the  statements  so  certified, 
and  would  prefer  if  this  practice  could  be  uniformly 
adopted  by  the  note  brokers." 

West  Chester,  Pa. 

"Right,  beyond  question." 

Providence,  R.  I. 

"We  heartily  approve  of  the  certification  of  statements, 
and  think  in  many  cases  the  appraisal  of  a  competent 
expert  in  merchandise  values  should  accompany  the  state- 
ment." 

"We  believe  this  a  proper  requirement,  and  hope  that 
the  time  is  not  far  distant  when  the  borrower  will  under- 


AND  COMMERCIAL  CREDIT.  51 

stand  that  his  first  step  in  applying  for  a  line  of  credit 
at  a  bank  is  to  have  prepared  by  a  responsible  accountant 
a  properly  certified  statement." 

Dallas,  Tex. 

"I  think  the  time  is  coming  when  all  large  borrowers 
will  feel  the  necessity  of  providing  statements  by  pjablic 
accountants." 

San  Antonio,  Tex. 

"It  is  the  only  safe  way.*' 

Norfolk,  Fa. 

"We  never  lose  an  opportunity  to  urge  the  certification 
of  borrowers'  statements  by  public  accountants." 

Richmond,  Fa. 

"I  firmly  believe  that  the  time  will  come  when  very  few 
banks  will  grant  considerable  lines  of  credit  except  upon 
statements  certified  by  independent  accountants  in  whom 
they  have  confidence." 

Bellingham,  Wash. 

"I  would  like  to  see  the  time  when  all  statements  would 
have  to  be  certified." 

North  Yakima,  Wash. 

"I  should  be  glad  to  see  the  practice  become  general. 
We  have  lost  money  loaned  on  statements  which  perhaps 
were  correct  as  to  books,  but  misleading  and  inaccurate  in 
a  way  that  an  analysis  would  have  uncovered." 


52  ACCOUNTANTS'  CERTIFICATES 

Spokane,  Wash. 

"We  think  the  plan  should  be  adopted  as  fast  as  it  con- 
sistently can." 

Racine,  Wis. 

"It  is  our  opinion  that  all  corporations  or  firms  selling 
their  paper  through  a  broker  should  have  their  books 
audited  at  least  once  a  year  by  certified  public  accountants." 


AND  COMMERCIAL  CEEDIT.  53 


CHAPTER  IV 

The  extracts  contained  in  the  foregoing  pages 
demonstrate  incontestably  that  there  is  a  prepon- 
derance of  opinion  in  favor  of  certification  of  bor- 
rowers' statements.  A  small  minority,  however, 
has  gone  still  further  and  has  introduced  the  rule 
that  statements  must  be  certified.  Many  others 
wish  that  such  a  rule  could  be  enforced,  but  fear 
to  make  the  attempt  until  the  custom  has  become 
more  general. 

Naturally,  the  greater  development  of  the  idea 
of  compulsory  certification  is  to  be  found  in  the 
larger  cities,  but  it  is  gratifying  to  note  that  the 
sentiment  in  favor  of  this  provision  is  distributed 
over  a  considerable  portion  of  the  country. 

The  following  extracts  are  selected  from  the 
opinions  expressed  in  reply  to  the  first  question 
on  the  inquiry  blank,  viz. : 

"What  is  the  attitude  of  your  bank  in  regard  to  requir- 
ing that  statements  submitted  by  borrowers  or  note  brokers 
shall  be  certified  by  public  accountants  ?" 

It  is  of  much  interest  to  view  these  replies  first 
in  the  light  of  the  financial  status  of  the  banks 
from  which  they  emanate,  and  in  the  following 
statement  the  various  kinds  of  opinions  expressed 
are  separated  into  four  classes  and  these  classes 
again  separated  according  to  the  combined  capi- 
tal and  surplus  of  the  banks  concerned: 


54 


ACCOUNT  ANTS '  CERTIFICATES 


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AND  COMMERCIAL  CREDIT.  55 

It  would  be  instructive  to  reproduce  all  the 
replies  to  this  important  question,  but  the  follow- 
ing selections  may  be  taken  as  fairly  indicative  of 
the  trend  of  opinion : 

New  York  City. 

"We  prefer  to  have  them  [statements]  certified  by  pub- 
lic accountants." 

San  Francisco,  Cat. 

"We  are  using  every  legitimate  influence  to  bring  this 
about." 

New  York  City. 

"We  prefer  statements  submitted  by  reliable  public 
accountants." 

"We  believe  that  they  should  be  required,  but  on  ac- 
count of  competition  do  not  feel  we  can  insist  on  it.  I 
think  that  the  commercial  paper  brokers  can  probably  do 
more  than  the  bankers  towards  accomplishing  this  end." 

San  Francisco,  Cal. 

"We  are  trying  to  educate  our  borrowers  and  brokers 
to  furnish  statements  certified  by  public  accountants." 

Wilmington,  Del. 

"More  and  more  inclined  only  to  buy  paper  accompanied 
by  such  statements." 

Chicago,  III. 

"We  favor  it  strongly,  and  give  the  preference  to  paper 
accompanied  by  certified  statements." 


56  ACCOUNTANTS'  CERTIFICATES 

Boston,  Mass. 

"We  prefer  such  statements,  but  do  not  insist  on  them 
in  every  case  with  our  patrons." 

Peabody,  Mass. 

"We  favor  the  idea  and  are  doing  what  we  can  to 
educate  borrowers  to  it,  but  local  conditions  here  prevent 
our  requiring  the  certification." 

St.  Paul,  Minn. 

"We  regard  statements  certified  by  public  accountants 
with  much  more  favor,  and  require  same  wherever  prac- 
ticable." 

Kansas  City,  Mo. 

"We  require  them  whenever  we  can  do  so." 

St.  Louis,  Mo. 

"We  strongly  favor,  and  always  urge,  that  statements 
be  made  and  certified  by  public  accountants." 

Newark,  N.  J. 

"We  continually  recommend  them  as  desirable,  for  their 
own  protection  as  well  as  ours." 

Rochester,  N.  Y. 

"We  have  not  insisted  in  a  general  way,  but  wish  all 
statements  were  certified  by  public  accountants." 

Charlotte,  N.  C. 

"Required  in  cases  of  corporations  and  most  individ- 
uals." 


AND  COMMERCIAL  CREDIT.  57 

Fargo,  N.  D. 

"In  purchasing  commercial  paper  of  brokers  we  always 
give  that  paper  preference  that  is  sustained  by  reports  of 
public  accountants." 

Cleveland,  O. 

"We  endeavor  to  have  all  our  large  borrowers  file  state- 
ments that  have  been  certified  by  public  accountants,  and 
in  the  purchase  of  paper  from  note  brokers  we  prefer  the 
names  that  have  certified  statements." 

Sandusky,  0. 

"We  always  demand  it  in  case  of  brokers." 

Altoona,  Pa. 

"When  in  doubt  as  to  the  financial  standing  of  borrowers 
we  request  a  statement.  Purchasing  commercial  paper  from 
some  note  brokers,  we  ask  for  balance  sheet  certified  by 
public  accountants." 

Lemoyne,  Pa. 

"We  require  such  statements  to  be  certified  by  public 
accountants." 

Lancaster,  Pa. 

"We  are  strongly  in  favor  of  statements  made  by  pub- 
lic accountants  for  firms  borrowing  through  note  brokers." 

Philadelphia,  Pa. 

"We  come  more  and  more  to  give  preference  to  names 
with  audited  statements." 


58  ACCOUNTANTS'  CERTIFICATES 

"It  is  not  our  custom  to  require  certified  statements 
from  borrowers  without  exception,  although  we  encourage 
the  practice  wherever  possible.  Keen  competitive  methods 
in  the  banking  business  tend  to  hinder  banks  from  demand- 
ing certified  financial  statements." 

Pittsburgh,  Pa. 

"We  require  it  only  in  special  cases,  but  would  like  to 
see  the  practice  more  general." 

Providence,  R.  I. 

"We  much  prefer  paper  of  concerns  whose  statements 
have  been  made  up  by  certified  accountants  of  recognized 
ability." 

Nashville,  Tenn. 

"We  have  no  requirements,  but  much  prefer  statements 
made  by  certified  public  accountants." 

Dallas,  Tex. 

"We  do  not  require  it,  but  when  certified  statements  are 
furnished  us  we  put  more  confidence  in  them." 

Norfolk,  Fa. 

"We  require  statements  from  practically  all  of  our  cus- 
tomers, and  think  all  parties  selling  paper  through  note 
brokers  should  furnish  them;  and  statements  by  certified 
public  accountants  are  decidedly  preferable." 

Camden,  N.  J. 

"We  do  not  require  it,  but  would  much  prefer  to  have 
all  statements  certified." 


AND  COMMERCIAL  CREDIT.  59 

Lincoln,  Neb. 

"We  insist  upon  a  certified  statement  when  we  purchase 
commercial  paper." 

Greenville,  Miss. 

"Not  in  a  position  to  require  it,  but  would  like  to  be." 

Battle  Creek,  Mich. 

"Have  never  required  the  certification  of  statements, 
though  look  with  favor  upon  statements  that  have  been 
certified  by  disinterested  public  accountants." 

Holyoke,  Mass. 
"We  demand  it." 

Baltimore,  Md. 

"We  do  not  require  it.  However,  when  furnished  it 
creates  a  better  impression." 

Wichita,  Kan. 

"We  do  not  require  audited  statements,  but  give  a  de- 
cided preference  to  paper  supported  by  such  statements." 

Geneva,  N.  Y. 

"We  require  them  in  almost  every  instance  where  a  line 
of  discount  is  granted." 

Albany,  N.  Y. 

"When  purchasing  paper  through  commercial  brokers 
we  require  statements  signed  by  certified  public  account- 
ants when  possible." 


60  ACCOUNTANTS'  CERTIFICATES 

Rockford,  III. 

"We  do  not  require  i't,  but  are  more  willing  to  purchase 
paper  thus  certified." 

Green  Bay,  Wis. 

"It  is  not  possible  always  to  insist  upon  it,  but  we 
recommend  it." 

Carthage,  N.  Y. 

"We  do,  except  in  cases  of  a  few  local  concerns  with 
which  we  are  in  close  touch." 

New  York  City. 

"We  always  require  certified  statements/' 

"We  are  requiring  from  note  brokers  that  the  statements 
of  all  firms  whose  paper  we  purchase  be  certified  to  by 
public  accountants." 

"Required  on  paper  purchased  from  note  brokers." 

Los  Angeles,  Cal. 

"We  favor  such  statements." 

Denver,  Colo. 

"Request  is  often  made,  and  in  some  cases  required." 

Atlanta,  Ga. 

"It  is  our  custom  to  require  an  audit." 

Chicago,  III. 

"We  get  certified  statements  where  we  can." 


AND  COMMERCIAL  CREDIT.  61 

"Always  prefer  them." 

Joliet,  III. 

"We  require  statements." 

Indianapolis,  Ind. 

"Custom  and  competition  lead  us  to  indifference  with 
most  of  our  own  customers.  We  are  more  exacting  when 
buying  paper  through  brokers,  and  discriminate  in  favor  of 
statements  certified  by  public  accountants." 

Shreveport,  La. 

"In  buying  out  of  town  commercial  paper  we  give 
preference  to  concerns  whose  statements  are  certified  by 
reputable  firms  of  public  accountants. 

Baltimore,  Md. 

"Have,  as  yet,  no  definite  policy  to  prefer  certified  state- 
ments. Whenever  the  faintest  shadow  of  doubt  arises  as 
to  the  financial  status  of  any  of  our  borrowers  we  immedi- 
ately request  them  to  have  an  audit  made  by  certified  public 
accountants." 

Boston,  Mass. 

"We'  insist  on  it  as  far  as  we  are  able." 

St.  Louis,  Mo. 

"We  encourage  and  urge  where  it  can  be  done,  in  view 
of  bank  competition." 

Omaha,  Neb. 

"We  prefer  that  the  statements  submitted  by  borrowers 
should  be  statements  of  public  accountants." 


62  ACCOUNTANTS'  CERTIFICATES 

"We    prefer    them,    and    always    ask    for    them    from 
brokers." 

Philadelphia,  Pa. 

"We  get  them  when  we  can,  and  prefer  them,  but  do 
not  at  present  make  them  essential." 

Hoboken,  N.  J. 

"We  have  not  made  this  an  established  rule  except  when 
purchasing  commercial  paper." 

Webster  Groves,  Mo. 
"We  require  it." 

St.  Charles,  Mo. 

"Require  statements." 

Kansas  City,  Mo. 

"We   insist   upon    it   in   considering   paper   offered   by 
brokers." 

Joplin,  Mo. 

"We  do  not  require  it.     We,  and  all  others  who  take 
commercial,  should." 

Minneapolis,  Minn. 

"Always  glad  to  get  them,  but  do  not  insist  in  every 
instance." 

Taunton,  Mass. 

"We  think  it  would  be  an  additional  safeguard,  but  do 
not  propose  to  insist  upon  it." 


AND  COMMERCIAL  CREDIT.  63 

Cumberland,  Md. 

"Requested  when  lines  of  credit  reach  certain  figures." 

Baltimore,  Md. 

"When  possible,  get  certified  statements  from  our  cus- 
tomers." 

Emporia,  Kan. 

"We  would  like  to  insist  on  this  method." 

Cedar  Falls,  Iowa. 

"We  believe  this  would  be  a  very  good  thing,  but  ques- 
tion whether  we  could  enforce  it  in  a  town  of  this  size." 

Berkeley,  Cal. 

"We  would  prefer  certified  statements,  but  do  not  exact 
them.  Custom  here  places  us  in  a  position  to  pass  upon 
each  case  without  applying  a  general  rule." 

Waterville,  Me. 

"The  profession  of  certified  public  accountant  is  not 
known  here,  and  it  would  therefore  be  useless  to  require 
certified  statements  from  our  borrowers." 


64  ACCOUNTANTS'  CERTIFICATES 


CHAPTER  V 

The  second  question  on  the  inquiry  blank  sub- 
mitted to  bankers  is  one  that  elicited  a  wide  va- 
riety of  replies.  The  question  reads: 

"Where  this  [certification]  is  required  how  is  it  re- 
garded by  the  borrowers  of  your  bank?" 

Many  bankers  expressed  the  opinion  that  it 
would  not  be  practicable  to  enforce  such  a  rule 
unless  it  were  universal,  because  of  the  dissatis- 
faction which  would  be  caused  among  borrowers. 
Other  bankers  believed  that  it  would  be  better  to 
offend  an  occasional  borrower  than  to  run  the  risk 
of  accepting  unverified  statements.  Still  others 
— and  these  are  principally  in  the  larger  cities- 
report  that  they  have  found  no  objection  what- 
ever to  the  requirement,  inasmuch  as  borrowers 
are  learning  that  by  submitting  certified  state- 
ments they  are  strengthening  their  own  position. 

Nearly  every  reply  received  from  bankers 
whose  institutions  are  interested  in  commercial 
paper  gave  expression  of  opinion  on  this  point. 
In  order  to  present  a  fair  comparative  view  the 
following  extracts  are  taken  at  random  from  re- 
plies received: 


AND  COMMERCIAL  CREDIT.  65 

New  York  City. 

"We  have  yet  to  hear  of  a  single  objection." 

"It  is  being  taken  in  the  right  spirit  and  we  are  adding 
to  the  number  every  year." 

"Many  borrowers  are  not  yet  ready  for  this  as  a  general 
requirement,  but  an  increasing  number  look  at  it  with 
favor." 

Utica,  N.  Y. 

"Favorably  in  our  experience." 

Los  Angeles,  Cal. 

"Have  not  met  with  many  objections." 

San  Francisco,  Cal. 

"Nearly  all  our  customers  look  upon  it  with  favor." 

St.  Paul,  Minn. 

"Our  experience  is  that  some  borrowers  fear  the  ex- 
pense; others  feel  well  repaid  for  having  their  books 
audited  by  public  accountants." 

St.  Louis,  Mo. 

"What  objection  there  is  could  be  removed  by  a  cam- 
paign of  your  association,  the  banks  and  commercial  paper 
brokers." 

"Broad-minded  and  broad-gauged  borrowers  always 
agree." 


66  ACCOUNTANTS'  CERTIFICATES 

Cleveland,  0. 

"Our  small  borrowers  would  object  to  the  expense." 

Newark,  N.  J. 

"Where  the  advantages  are  fully  explained  we  find  that 
in  most  instances  it  meets  with  approval." 

Buffalo,  N.  Y. 

"A  few  seem  to  think  it  'O  K.'     The  many  take  excep- 
tions.   It  is  a  campaign  of  education." 

Cleveland,  0. 

"As  a  rule,  borrowers  do  not  object." 

Springfield,  0. 

"Some  would  withdraw  their  business  from  us  entirely." 

Denver,  Colo. 

"Some  take  the  suggestion  very  kindly,  others   resent 
it — the  latter  changing  their  bank  accounts." 

San  Francisco,  Cal. 

"Resisted  by  many,  particularly  the  old-fashioned." 

Hartford,  Conn, 

"They  fear  the  expense  of  the  examination." 

Altoona,  Pa. 

"No  objection   if  they   are  confident  they   can   submit 
satisfactory  statements." 


AND  COMMERCIAL  CREDIT.  67 

Lewistown,  Pa. 

"Are  inclined  to  resent  the  requirement.  It  is  more  a 
matter  of  education." 

Philadelphia,  Pa. 

"It  depends  upon  the  borrowers'  relations  to  us.  If 
large  enough  to  be  independent  of  our  facilities  they  must 
be  handled  carefully  to  avoid  creating  a  resentment.  Other- 
wise, they  are  inclined  to  acquiesce  more  gracefully.  We 
have  never  been  refused." 

West  Chester,  Pa. 

"Rarely  have  any  difficulty." 

Philadelphia,  Pa. 

"Where  a  client  retains  a  certified  public  accountant 
as  the  result  of  a  suggestion  on  the  part  of  the  banker  the 
true  value  of  the  audit  is  appreciated,  and  we  do  not  know 
of  an  instance  in  which  the  practice,  once  started,  has 
been  discontinued." 

Tipton,  Ind. 

"If  they  complain  we  should  not  care  to  buy  the  paper 
We  have  very  little  complaint  about  it." 

Geneva,  N.  Y. 

"I  think  the  prejudice  against  it  that  was  common  some 
years  ago  has  disappeared." 

Canton,  N.  Y. 

"Our  observation  inclines  us  to  the  opinion  that  the 
stronger  the  financial  position  of  the  borrower  the  more 


68  ACCOUNTANTS'  CERTIFICATES 

likely  he  is  to  welcome  the  suggestion.     Many  of  the  best 
seem  to  appreciate  its  value  to  themselves." 

Canandaigua,  N.  Y. 

"Some  of  the  most  responsible  borrowers  take  a  satis- 
faction in  being  able  to  furnish  certificate  by  a  public 
accountant." 

Racine,  Wis. 

"We  find  a  growing  sentiment  of  customers  in  favor 
of  certified  statements." 

Greencastle,  Ind. 

"No  objection  to  it  by  solvent  concerns." 

El  Paso,  Tex. 

"We  have  never  found  a  good  one  to  object." 

Kansas  City,  Mo. 

"Borrowers,  as  a  rule,  object  to  it,  alleging  that  it 
imposes  unnecessary  expense  upon  them." 

"Our  borrowers  seldom  take  kindly  to  the  suggestion 
in  the  first  instance." 

Las  Cruces,  N.  Mex. 

"Where  statements  are  asked,  the  borrowers  show  re- 
sentment. They  need  education." 

Milwaukee,  Wis. 

"In  a  few  instances  where  we  have  requested  such 
statements  our  customers  have  not  apparently  taken  kindly 
to  the  idea." 


AND  COMMERCIAL  CEEDIT.  69 

Spokane,  Wash. 

"In  most  cases  it  is  objectionable  on  account  of  expense, 
annoyance,  etc. 

Modesto,  Cal. 

"Not  objected  to  by  good  concerns." 

Buffalo,  N.  Y. 

"Willingly  consent." 


The  third  question  on  the  inquiry  blank  reads : 

"To  what  extent  do  you  find  that  borrowers  voluntarily 
submit  certified  statements?" 

This  is  answered  to  a  great  degree  by  the  re- 
plies to  the  preceding  question.  In  the  large 
cities,  and  in  some  of  the  smaller  cities  in  the 
districts  adjacent  to  large  centres,  the  practice 
seems  to  be  quite  prevalent;  but  in  outlying  dis- 
tricts the  general  report  is  that  borrowers  are  not 
acquainted  with  the  advantages  of  certified  state- 
ments, and  in  some  instances  are  not  even 
cognizant  that  certified  statements  are  ever  sub- 
mitted. In  such  cases  the  idea  of  a  certified 
statement  voluntarily  prepared  and  submitted  is 
out  of  the  question;  but  wherever  the  situation  is 
understood,  and  the  submission  of  certified  state- 
ments is  recommended  by  the  banks,  there  is  a 
considerable  number  of  borrowers  ready  to  con- 
form to  this  modern  practice. 


70  ACCOUNTANTS'  CERTIFICATES 

Some  of  the  replies  were  in  terms  of  percent- 
age. For  example,  a  banker  in  New  York  re- 
ports that  not  more  than  5%  furnish  certified 
statements  voluntarily.  Another  New  York 
banker  estimates  the  number  at  slightly  less  than 
5%.  A  California  banker  estimates  10 %.  A 
Chicago  estimate  is  15%.  A  Baltimore  banker 
estimates  5%.  From  Boston  comes  an  estimate 
of  10%.  A  banker  in  St.  Louis  says,  "About  75% 
of  those  who  give  us  certified  statements  do  so 
voluntarily,  but  unfortunately  only  about  10% 
have  done  so."  Omaha  is  more  fortunate;  a 
banker  there  reports  that  one-half  the  borrowers 
voluntarily  submit  certified  statements.  In 
Fargo,  N.D.,  a  banker  reports  20%.  A  Philadel- 
phia estimate  is  5%,  and  another  from  the  same 
city  25%.  A  Norfolk  banker  reports,  "Most  of 
our  borrowers  now  furnish  statements  without 
our  asking  for  them." 

The  foregoing  extracts  are  fairly  indicative  of 
the  replies  from  those  who  report  the  existence 
of  voluntary  submission  of  certified  statements; 
but  by  far  the  greater  number  of  replies  state  that 
borrowers  do  not  voluntarily  have  their  state- 
ments certified  before  presenting  them  to  the 
bank.  As  has  been  seen,  there  is  satisfactory  evi- 
dence of  a  tendency  toward  certification  in  various 
parts  of  the  country,  but  the  fact  that  the  esti- 
mates are  chiefly  from  5%  to  10%  of  the  total 
number  of  borrowers  on  commercial  paper  shows 
that  a  great  deal  of  education  is  required,  and 


AND  COMMERCIAL  CREDIT.  71 

that  bankers,  note  brokers  and  accountants  have 
a  considerable  work  before  them  to  demonstrate 
the  necessity  for  what  should  be  sine  qua  non  in 
the  case  of  applications  for  loans  not  supported 
by  collateral. 

Closely  related  to  the  two  foregoing  questions 
is  No.  5  on  the  inquiry  blank,  which  reads  as 
follows : 

"Do  you  notice  an  increase  or  decrease  in  the  propor- 
tion of  borrowers'  statements  certified  by  public  account- 
ants?" 

The  reports  on  this  question  may  well  be  sum- 
marized in  the  form  of  a  tabulated  statement 
showing  those  bankers  who  report  an  increase, 
the  number  reporting  no  change  and  the  number 
reporting  a  decrease.  It  will  be  noted  that  a 
considerable  number  of  the  total  replies  failed  to 
answer  this  particular  inquiry. 

One  of  the  greatest  banks  in  the  country 
reports : 

"We  believe  the  practice  eventually  will  become  uni- 
versal." 

The  following  is  a  summary  of  replies  to  ques- 
tion 5 : 

Increase.        No  Change.        Decrease. 
307  58  1 


72  ACCOUNTANTS'  CERTIFICATES 


CHAPTER  VI 

Probably  the  most  important  question  in  the 
series  submitted  by  the  American  Association  of 
Public  Accountants  to  the  bankers  of  the  coun- 
try is  that  which  deals  with  the  effect  of  certified 
statements. 

The  question  reads : 

"Other  things  being  equal,  do  certified  statements  have 
a  favorable  effect  upon  the  terms  and  interest  rates  granted 
by  your  bank  to  borrowers?" 

Here  we  have  the  crux  of  the  whole  matter. 
And  yet,  in  a  way,  the  interrogation  is  not  alto- 
gether satisfactory,  because  it  is  found  that  in  a 
great  many  cases  while  no  difference  in  the  terms 
or  interest  rates  may  be  made  there  is  a  far 
greater  readiness  to  make  a  loan  upon  supported 
paper  than  upon  unsupported ;  accordingly,  in  or- 
der to  know  the  true  state  of  affairs,  it  is  almost 
necessary  to  bear  in  mind  the  general  replies  in 
regard  to  the  attitude  of  the  bank  in  the  matter 
of  certified  statements  and  to  read  the  quotations 
which  follow  in  the  light  of  the  information  pre- 
viously gained. 


AND  COMMERCIAL  CREDIT.  73 

In  nearly  every  case  the  banker  who  prefers 
certified  statements  is  ready  to  extend  better 
terms  and  in  some  instances  better  rates  to  the 
borrower  whose  affairs  have  been  investigated  by 
an  independent  accountant. 

The  following  quotations  from  bankers'  replies 
fairly  illustrate  the  opinions  for  and  against  the 
idea  that  certified  statements  should  have  a  favor- 
able effect: 

New  York  City. 

"It  goes  without  saying  that  certified  statements  do 
have  a  favorable  effect  upon  the  terms  and  interest  rates 
of  this  bank  granted  to  borrowers." 

Richmond,  Va. 

"Other  things  being  equal,  certified  statements  have 
a  very  decided  effect  upon  the  terms  granted  to  borrow- 
ers. They  do  not,  however,  affect  the  interest  rates,  as  a 
general  thing." 

Denver,  Colo. 

"Undoubtedly  increases  our  confidence  in  such  bor- 
rowers, and  in  consequence  they  can  depend  on  greater 
consideration  and  more  liberal  treatment." 

Portland,  Me. 

"Always  give  preference  to  certified  statements.  Dif- 
ference between  certified  and  uncertified  statements  almost 
if  not  quite  as  great  in  its  influence  in  taking  paper  as  that 
between  a  statement  and  no  statement." 


74  ACCOUNTANTS'  CERTIFICATES 

Chicago,  III. 

"I  do  not  know  as  they  do  at  the  present  time,  but  they 
surely  will  in  times  coming." 

Louisville,  Ky. 

"It  would,  undoubtedly." 

Chicago,  III. 

"Everything  else  being  equal,  I  believe  that  those  bor- 
rowers who  have  their  statements  certified  to  by  public 
accountants  would  obtain  slightly  better  terms  and  rates 
than  those  who  do  not." 

St.  Paul,  Minn. 

"Certified  statements  unquestionably  have  a  favorable 
effect  upon  the  terms  and  interest  rates  granted  not  only 
by  our  bank  but  all  banks  to  borrowers." 

St.  Louis,  Mo. 

"Certified  statements  have  a  decidedly  favorable  effect 
upon  us,  and  undoubtedly  secure  better  interest  rates." 

Asheville,  N.  C. 

"Yes,  very  much  so." 

Philadelphia,  Pa. 

"Other  things  being  equal,  the  fact  of  loaning  may 
be  affected  by  certified  statements — terms  and  rates  of 
interest  by  the  market." 

Pittsburgh,  Pa. 

"No  effect  on  rates.    Loans  are  more  readily  accepted." 


AND  COMMERCIAL  CEEDIT.  75 

Philadelphia,  Pa. 

"As  to  lines  of  accommodation,  yes;  and  also  slightly 
as  to  interest  rates." 

Pittsburgh,  Pa. 

"Yes,  a  thoroughly  itemized  statement  would  give  con- 
fidence, and  no  doubt  lessen  interest  rates  to  concerns 
furnishing  same." 

Nashville,  Tenn. 

"Other  things  being  equal,  certified  statements  have 
preference  both  as  to  terms  and  interest." 

Bellingham,  Wash. 

"The  borrower  has  a  better  chance  of  getting  the  loan. 
The  interest  would  be  no  less,  because  our  demand  is 
largely  more  than  we  can  take  care  of." 

Racine,  Wis. 

"We  have  not  made  any  special  rates  on  account  of  the 
certified  statements,  the  companies  furnishing  them  always 
commanding  the  lowest  rates  in  the  market.  We  believe, 
however,  that  the  certified  statement  would  warrant  a 
better  rate  than  the  ordinary  statement  furnished." 

Phillipsburg,  N.  J. 

"All  things  considered,  we  would  be  inclined  to  shade 
the  rate." 

Camden,  N.  J. 

"They  certainly  have  the  preference,  and  it  often  affects 
the  rate  charged." 


76  ACCOUNTANTS'  CERTIFICATES 

Jackson,  Miss. 

"It  would  have  very  material  and  favorable  effect." 

Emporia,  Kan. 

"Would  establish  a  better  line  of  credit  to  borrower; 
would  not  affect  rate." 

Chicago,  III. 

"Sometimes  results  in  more  liberal  lines  of  credit,  but 
has  no  effect  on  interest  rates." 

Crawfordsville,  III. 
"Most  certainly." 

Kansas  City,  Mo. 

"Do  not  think  such  statements  would  perceptibly  affect 
the  interest  rate,  as  compared  with  other  paper  of  equally 
good  quality." 

Mount  Vernon,  N.  Y. 

"Not  necessarily  on  terms  or  rates.  Chief  value  is 
that  lender  feels  that  the  report  has  been  made  by  a  dis- 
interested party." 

New  York  City. 

"Always  prefer  to  have  them." 

"Yes." 

"No." 

"No,  and  yes." 


AND  COMMERCIAL  CREDIT.  77 

"It  would." 
"To  some  extent." 

"Yes,  to  a  slight  extent,  although  the  effect  on  our 
willingness  to  lend  is  more  important." 

"No." 

"It  all  depends  upon  the  borrower  and  our  judgment 
of  his  character  and  responsibility.  A  certified  statement 
is  a  favorable  indication." 

"They  do." 

Ogdensburg,  N.  Y. 

"Yes,  in  making  outside  loans." 

Utica,  N.  Y. 
"Yes." 

Los  Angeles,  Cat. 

"Yes,  we  have  more  confidence  in  the  statements  of 
concerns  certified  by  public  accountants." 

Pomona,  Cal. 

"Yes." 

San  Francisco,  Cal. 
"Yes." 

"It  has  its  effect  on  the  terms  but  not  the  rate  of 
interest." 


78  ACCOUNTANTS '  CERTIFICATES 

Denver,  Colo. 

"It  might  have  a  bearing." 

Hartford,  Conn. 
"Yes." 

New  Milford,  Conn. 
"Yes." 

Wilmington,  Del. 
"Yes." 

Macon,  Ga. 

"Yes." 

Cairo,  III. 

"No,  but  are  looked  upon  with  more  favor." 

Chicago,  III. 

"Certified  statements  improve  the  desirability,  and 
therefore  help  the  sale  of  paper  in  brokers'  hands,  but 
have  very  little  effect  upon  the  terms  and  interest  rates." 

"Yes,  decidedly." 

Joliet,  III. 

"Might  make  easier  terms  but  do  not  affect  the  rate  of 
interest." 

Lincoln,  III. 

"Most  assuredly." 


AND  COMMERCIAL  CREDIT.  79 


Indianapolis,  Ind. 
"Yes." 


Boone,  Iowa. 

"Yes." 

Shreveport,  La. 
"Yes." 

Baltimore,  Md. 
"Yes." 


"They  would  probably  save  delay  of  further  investiga- 
tion and  make  us  somewhat  more  willing  to  loan.  Do 
not  believe  they  would  materially  affect  rate." 

Boston,  Mass. 
"No." 

"It  gives  a  bank  a  better  impression  at  once  to  have 
a  certified  statement." 

Peabody,  Mass. 
"Yes,  decidedly." 


Duluth,  Minn. 
"Yes." 

Gulf  port,  Miss. 
"Yes." 


80  ACCOUNTANTS'  CERTIFICATES 

Kansas  City,  Mo. 

"They  would  have  a  beneficial  effect  upon  us." 

St.  Louis,  Mo. 

"Yes." 

Omaha,  Neb. 
"They  do." 

"Yes,  they  do." 

Buffalo,  N.  Y. 

"Yes,  if  certified  accountants  are  of  good  repute  and 
experience." 

Charlotte,  N.  C. 

"Yes." 

Fargo,  N.  D. 
"Yes." 

Cincinnati,  0. 
"They  do." 

Cleveland,  0. 
"Yes." 

Findlay,  0. 

"Interest  rates  are  not  affected." 

Springfield,  0. 

"They  do  not.     The  rate  is  regulated  by  the  balance 
they  carry  with  us." 


AND  COMMERCIAL  CREDIT.  81 

Bangor,  Pa. 
"Yes." 

Lancaster,  Pa. 

"No,  but  we  favor  the  certified  statements.*' 

Providence,  R.  /. 

"Cannot  say  that  we  have  discriminated  as  yet  in 
making  interest  rates." 

Denison,  Tex. 

"It  may  not  cut  any  figure  in  the  rate,  but  of  two 
offerings  of  equal  merit  where  the  statement  of  one  is 
certified  by  a  public  accountant  would  give  the  preference 
in  purchase." 

San  Antonio,  Tex. 
"Yes." 

Norfolk,  Fa. 

"Certified  statements  influence  us  very  largely  in  the 
amount  of  accommodation  extended  to  customers." 

Spokane,  Wash. 
"Yes." 

"They  do." 

Paterson,  N.  J. 

"Have  no  influence  on  rates." 

Harrison,  N.  «/, 
"Yes." 


82  ACCOUNTANTS'  CERTIFICATES 

Manchester,  N.  H. 
"Not  much/' 

Hastings,  Neb. 
"They  do." 

Butte,  Mont. 
"Yes." 

Webster  Groves,  Mo. 

"Condition,  as  shown  by  statement,  affects  rate.*' 

St.  Joseph,  Mo. 

"Yes,  they  usually  give  them  preference." 

Corinth,  Miss. 

"It  certainly  would  have." 

St.  Paul,  Minn. 
"Yes." 

Sault  Ste.  Marie,  Mich. 

"A   favorable   certificate   tends   to   give  borrowers   the 
most  favorable  rate  of  interest." 

Worcester,  Mass. 
"Yes." 

Dorchester,  Mass. 
"Yes." 

Cumberland,  Md. 

"Most  assuredly,  yes/' 


AND  COMMERCIAL  CREDIT.  83 

Boston,  Mass. 
"Yes." 

"Rates  are  not  influenced." 

Baltimore,  Md. 

"Unquestionably  they  do." 

"Very  little  effect  as  to  rates;  but,  of  course,  certified 
statements  inspire  confidence  as  to  amounts  we  would 
loan." 

Lawrence,  Kan. 

"Not  much  effect  on  the  rate,  as  a  rule,  but  a  certified 
statement  approved  by  the  lender  would  lubricate  transac- 
tions, give  more  confidence,  and  lead  to  a  preferred  class." 

Sioux  City,  Iowa. 

"Have  no  effect  on  rate." 

Martinsville,  Ky. 

"We  believe  in  them.*' 

Vancouver,  Wash. 
"No." 

Berkeley,  Col. 
"Decidedly." 

Los  Angeles,  Cal. 
"Yes,  indeed." 


84  ACCOUNTANTS'  CERTIFICATES 

Fulton,  N.  Y. 

"Yes,  if  the  statement  shows  up  well." 

Albany,  N.  Y. 

"No.    We  are  influenced  more  by  the  reports  from  banks 

and  trade  generally." 

Ridgewood,  N.  J. 
"Slightly  better." 

Red  Bank,  N.  J. 
"They  should." 

Oshkosh,  Wis. 
"I  think  so." 

Las  Cruces,  N.  Meat. 
"Very  likely." 

Hammond,  Ind. 
"As  a  rule." 

Springfield,  III. 

"Yes,  better  satisfied." 

Jersey  Snore,  Pa. 
"Yes,  it  would." 

Spokane,  Wash. 

"A  certified  statement  is  always  preferable." 


AND  COMMERCIAL  CREDIT.  85 

Houston,  Tex. 

"We  think  it  would." 

Galveston,  Tex. 

"Think  well  of  them,  but  they  do  not  affect  rates." 

Little  Falls,  N.  Y. 

"Yes,  on  paper  which  we  buy." 

From  many  parts  of  the  country  the  reply  to 
the  question  concerning  the  effect  of  certified 
statements  upon  rates  and  terms  is  simply  "Yes." 

In  the  foregoing  excerpts  an  effort  has  been 
made  to  show  opinions  from  widely  separate 
points. 

The  capital  of  the  banks  whose  officers  have 
expressed  opinions  on  tfiis  subject  is  of  consider- 
able moment,  and  the  following  statement,  com- 
prising the  numbers  of  replies  in  which  this  ques- 
tion was  answered,  will  be  found  of  interest : 


86 


ACCOUNTANTS'  CERTIFICATES 


|!l 

C*          C<1                                    CO          <N 

10          0 

CO                                                         TH           TH 

Is! 

O>          CO                                     CD          IO 

STl 

rH          CO                                     CO          Oi 

M 

W          iH                                      CO          b- 

iO                                                                                 TH                TH 

»o       o 

<M          »O 

.  . 

1-1 

TH           <M 

CO           TH                                        10           •* 

TH                                                                                 TH                0 

Attitude  of  banks 
when  certified 
statements  are 
submitted 

'S                ^          %    p    ci   »d 

§       §     I*.:!       J 

I      |*lll      1 

^           s       §  *       ~            ® 

^S     n        ^^"S-cj     S 

5J  -2       5        *§&§!       'S 
§£        ^        -^Pftgoj        0 
W           pq       w                       fc 

AND  COMMERCIAL  CREDIT.  87 


CHAPTER  VII 

In  the  foregoing  pages  is  given  a  fairly  repre- 
sentative selection  of  replies  in  so  far  as  they 
concern  the  six  general  questions  on  the  inquiry 
blank  submitted  to  bankers.  The  replies  might 
be  further  subdivided  and  assorted,  but  in  view 
of  the  practical  unanimity  in  favor  of  certifica- 
tion it  seems  unnecessary  to  labor  the  point.  In 
several  instances,  however,  the  replies  have  con- 
tained suggestions  and  comments  not  directly 
concerned  with  the  questions  asked,  but  of  con- 
siderable value,  and  the  following  pages  contain 
some  of  the  more  important  of  these  expressions 
of  opinion. 

These  comments  and  suggestions  are  com- 
mended to  the  consideration  of  bankers,  account- 
ants and  the  public  generally. 

Omaha,  Neb. 

"The  writer  thinks  that  an  amendment  to  the  banking 
act,  requiring  it  [certification]  for  all  paper  taken  within 
certain  fixed  limits,  would  be  of  more  service  to  the  public 
than  constant  bank  examinations." 

Indianapolis,  Ind. 

"Certification  of  borrowers*  statements  as  shown  by 
their  books  is  not  sufficient.  There  should  be  an  audit 
of  inventories  and  independent  verification  of  accounts 


88  ACCOUNTANTS '  CERTIFICATES 

receivable.  When  brokers  sell  paper  of  borrowers  they, 
the  brokers,  should  be  required  to  certify  as  to  amount 
issued  and  sold." 

Battle  Creek,  Mich. 

"Every  statement  submitted  by  a  note  broker  should 
be  on  the  authority  of  certified  accountants,  with  an  affi- 
davit of  two  leading  officers  of  the  company  that  the  figures 
submitted  and  the  property  in  the  various  warehouses 
throughout  the  country  was  absolutely  true  according  to 
their  best  knowledge  and  belief." 

St.  Paul,  Minn. 

"I  am  strongly  in  favor  of  certification  of  borrowers' 
statements  and  am  impressed  with  the  fact  that  they 
would  be  much  more  valuable  to  the  lender  if  an  appraisal 
or  inventory  by  experts  accompanied  the  statement." 

New  York  City. 

"Commercial  paper  brokers  could  probably  do  more 
than  bankers  toward  accomplishing  this  end.  The  certifi- 
cation should  be  more  specific  than  at  present,  and  tell 
just  what  the  accountant  has  done  besides  simply  auditing 
the  books." 

Cincinnati,  O. 

"All  large  concerns  should  have  their  books  audited  at 
least  twice  a  year  by  certified  public  accountants." 

Philadelphia,  Pa. 

"We  feel  that  the  accountant  should  not  merely  certify 
that  the  balance  sheet  is  in  agreement  with  the  books, 


AND  COMMERCIAL  CREDIT.  89 

but  should  state  that  the  financial  statement  reflects  the 
true  condition  of  the  concern  and  sets  forth  all  debts  of 
every  character,  including  indirect  and  contingent  liabili- 
ties on  account  of  endorsement,  guarantees,  etc." 

Nashville,  Tenn. 

"If  the  clearing  houses  of  the  country  should  adopt  a 
rule  requiring  that  all  statements  be  certified  by  public 
accountants  it  is  manifest  that  it  would  be  of  decided 
advantage  to  those  who  lend  upon  the  faith  of  the  state- 
ments." 

Helena,  Mont. 

"I  hope  the  time  will  come  when  the  accounts  of  all 
large  borrowers  will  be  certified  by  public  accountants, 
and  furthermore,  that  their  offerings  of  paper  to  the  public 
will  pass  through  some  sort  of  commercial  paper  clearing 
house  as  an  additional  check  upon  the  affairs  of  the 
borrower." 

Webster  Groves,  Mo. 

"In  addition  to  certification  of  statements,  concerns  sell- 
ing notes  through  brokers  should  register  at  some  central 
office  all  their  notes." 

Joplin,  Mo. 

"Should  be  certified  and  notes  recorded." 

Jackson,  Miss. 

"It  will  be  necessary  to  have  concert  of  action  and 
co-operation  of  all  banks  in  the  community." 


90  ACCOUNTANTS'  CERTIFICATES 

Minneapolis,  Minn. 

"Think  that  the  certification  of  borrowers'  statements 
is  an  excellent  thing  where  examination  of  assets  accom- 
panies verification  of  the  accounts." 

Evansville,  Ind. 

"Depends  entirely  upon  the  standing  of  the  C.  P.  A. 
Would  rather  have  a  check  against  inventories  than  resume 
of  book  figures." 

Danville,  III. 

"In  my  opinion  the  rule  should  be  certification  of  bor- 
rowers' statements  and  note  brokers'  certificates  on  paper 
outstanding  at  the  time  of  purchase." 

Seattle,  Wash. 

"We  are  much  in  favor  of  certification  of  statements, 
and  especially  independent  values." 

Deadwood,  S.  D. 

"We  believe  that  banks  should  demand  certified  state- 
ments,, and  in  the  case  of  commercial  paper  not  only  certi- 
fied statements  but  registration  of  some  sort." 

Pittsburgh,  Pa. 

"I  do  not  have  any  confidence  in  the  mere  certification 
to  the  effect  that  the  books  have  been  checked  and  found 
correct.  Do  have  great  confidence  when  the  auditor  se- 
lejcted  by  me  goes  into  the  affairs  of  a  company  thoroughly 
and  makes  an  analysis  of  the  earnings,  etc.,  for  several 
years  past." 


AND  COMMERCIAL  CEEDIT.  91 

Philadelphia,  Pa. 

"The  merchandise  part  of  the  assets  of  a  borrower 
should  be  valued  by  a  competent,  disinterested  party  be- 
fore being  approved  by  an  accountant.  The  risk  would 
materially  decrease  if  borrowers  would  furnish  certified 
statements,  together  with  an  engineer's  opinion  and  a 
disinterested  appraisal  of  the  merchandise." 

The  suggestions  contained  in  the  foregoing 
pages  will  be  heartily  approved  by  accountants. 
Modern  practice  requires  that  the  work  of  the 
auditor  shall  be  far  more  thorough  than  it  was 
in  the  earlier  days  of  public  accountancy. 

It  is  now  recognized  as  part  of  an  auditor's 
work  that  he  carefully  investigate  the  manner  in 
which  inventories  have  been  taken,  the  basis  of 
valuations,  and  the  accuracy  of  the  extensions  and 
footings.  Similarly,  the  position  and  history  of 
each  note  and  account  receivable  is  ascertained; 
suitable  reserves  for  bad  debts  are  established; 
and  provision  is  made  for  all  liabilities,  whether 
direct  or  contingent. 

An  accountant  who  would  sign  a  certificate 
without  giving  every  reasonable  attention  to  these 
matters  would,  no  doubt,  render  himself  liable  to 
substantial  damages  in  the  event  of  loss  resulting 
from  loans  made  upon  the  strength  of  such  a 
certificate. 

It  will  be  noted  that  several  bankers  draw  at- 
tention to  the  necessity  for  trustworthiness  on  the 
part  of  the  accountant.  This  will  be  admitted  at 


92  ACCOUNTANTS'  CERTIFICATES 

once,  for  an  untrustworthy  accountant  is  far 
worse  than  none — as  an  untrustworthy  lawyer  is 
a  more  serious  handicap  than  no  lawyer  at  all 
when  legal  advice  is  wanted.  It  is  undoubtedly 
true  that  there  have  been,  and  probably  still  are, 
many  men  posing  as  accountants  who  are  ready  to 
undertake  any  kind  of  work  and  to  produce  any 
kind  of  result  that  the  client  may  desire.  But  it  is 
against  this  sort  of  nefarious  practice  that  bank- 
ers, accountants  and  note  brokers  are  setting 
themselves  in  opposition;  and  it  is  no  longer  im- 
possible for  an  accountant's  reputation  to  be 
ascertained.  The  man  who  employs  a  so-called 
accountant,  or  the  man  who  accepts  the  statement 
of  a  so-called  accountant,  not  knowing  whether 
the  claim  to  accounting  ability  be  valid  or  not, 
has  little  reason  to  blame  any  one  but  himself  for 
the  errors  into  which  he  may  be  led.  If  the  public 
would  use  the  same  care  in  the  selection  of 
accountants  as  in  the  choice  of  lawyers  or  physi- 
cians, the  undesirable  element  claiming  member- 
ship in  the  profession  would  find  its  occupation 
gone. 

In  conclusion  it  may  be  said  that  the  accounting 
profession  is  entirely  at  one  with  bankers  in  desir- 
ing the  full  development  of  credit  relations. 

It  is  confidently  hoped  that  by  the  publication 
of  this  compilation  of  opinions  and  suggestions 
the  cause  of  true  credit  will  be  well  served. 


Geographical  Index 


PAGE 

Albany,  N.  Y 59,  84 

Altoona,  Pa 48,  57,  66 

Asheville,  N.  C 47,  74 

Atlanta,   Ga 38,  60 

Baltimore,  Md 41,  42,  59,  61,  63,  79,  83 

Bangor,  Pa 48,  81 

Battle  Creek,  Mich 42.   59,  88 

Bellingham,  Wash 51,  75 

Berkeley,  Cal 63,  83 

Boone,  la 40,  79 

Boston,  Mass 42,  56,  61,  79,  83 

Buffalo,  N.  Y 45,  66,  69,  80 

Butte,  Mont 82 

Cairo,  111 38,  78 

Camden,  N.  J , 58,  75 

Canandaigua,  N.  Y 68 

Canton,  N.  Y 67 

Carthage,  N.  Y 60 

Cedar  Falls,  la 63 

Charlotte,  N.  C 47,  56,  80 

Chicago,  111 24,  29,  38,  39,  55,  60,  61,  74,  76,  78 

Cincinnati,  O 33,  80,  88 

Cleveland,  0 32,  57,  65,  66,  80 

Corinth,  Miss 82 

Crawf ordsville,  111 76 

95 


96  GEOGRAPHICAL  INDEX. 

PAGE 

Cumberland,  Md . 63,  82 

Dallas,  Tex 51,  58 

Danville,  111 90 

Dayton,  0 47 

Deadwood,  S.  D 90 

Decatur,  111 39 

Denison,  Tex 35,  81 

Denver,  Colo 36,  37,  60,  66,  73,  78 

Donora,  Pa 48 

Dorchester,  Mass 82 

Du  Bois,  Pa 49 

Duluth,  Minn 43,  79 

El  Paso,  Tex 68 

Emporia,   Kan 63,  76 

Evansville,  Ind 40,  90 

Fargo,  N.  D 47,  57,  80 

Findlay,  O    47,  80 

Fulton,  N.  Y 84 

Galveston,  Tex 85 

Geneva,   N.   Y 59,  67 

Great  Bend,  Kan 40 

Green  Bay,  Wis 60 

Greencastle,   Ind 68 

Greenville,  Miss 59 

Gulf  port,   Miss 43,  79 

Hammond,  Ind 84 

Harrison,  N.  J 81 

Hartford,  Conn .37,  66,  78 

Hastings,  Neb 82 

Helena,  Mont 89 

Hoboken,  N    J 62 


GEOGRAPHICAL  INDEX.  97 

PAGE 

Holyoke,  Mass 59 

Houston,  Tex 85 

Indianapolis,  Ind 40,  61,  79,  87 

Jackson,  Miss • 76,  89 

Jersey  Shore,  Pa 84* 

Joliet,  111 39,  61,  78 

Joplin,  Mo 62,  89 

Kansas  City,  Mo 43,  44,  56,  62,  68,  76,  80 

Lancaster,  Pa 49,  57,  81 

Las  Cruces,  N.  M 68,  84 

Lawrence,  Kan 83 

Lemoyne,  Pa 49,  57 

Lewistown,  Pa 49,  67 

Lincoln,  111 39,  78 

Lincoln,  Neb 59 

Little  Falls,  N.  Y 85 

Los  Angeles,  Cal 37,  60,  65,  77,  83 

Louisville,  Ky 40,  41,  74 

Lowell,  Mass 42 

Macon,    Ga 38,  78 

Madison,  Wis 35 

Manchester,  N.  H 82 

Martinsville,   Ky 83 

Merced,  Cal 37 

Miles  City,  Mont 44 

Milwaukee,  Wis 68 

Minneapolis,  -  Minn 30,    62,  90 

Modesto,  Cal 69 

Mount  Vernon,  N.  Y 45,  76 

Muskogee,  Okla 48 

Nashville,  Tenn 34,  58,  75,  89 


98  GEOGRAPHICAL  INDEX. 

PAGE 

National  Stock  Yards,   111 40 

Naugatuck,  Conn 37 

New  Albany,  Ind 40 

Newark,  N.  J 44,   56,  66 

New  Milford,  Conn 36,  78 

New  York,  N.  Y 25,  26,  32,  45,  46,  55,  60, 

65,  73,  76,  77,  88 

Norfolk,  Va 51,  58,  81 

North  Yakima,  Wash 51 

Ogdensburg,   N.   Y 46,  77 

Omaha,  Neb 31,  44,  61,  62,  80,  87 

Oshkosh,   Wis 84 

Ossining,  N.  Y 47 

Paterson,  N.  J 81 

Pawtucket,  R.  1 34 

Peabody,  Mass 42,  56,  79 

Philadelphia,  Pa 33,  50,  57,  58,  62,  67,  74,  75,  88,  91 

Phillipsburg,  N.  J 75 

Pittsburgh,  Pa 50,  58,  74,  75,  90 

Pomona,  Cal 37,  77 

Portland,    Me 41,  73 

Providence,  R.  1 50,  58,  81 

Racine,  Wis 52,  68,  75 

Reading,  Pa 50 

Red  Bank,  N.  J 84 

Richmond,  Va 51,  73 

Ridgewood,  N.  J 84 

Rochester,  N.   Y 47,  56 

Rockford,  111 60 

Sacramento,  Cal 32 

St.  Charles,  Mo ,  .62 


GEOGRAPHICAL  INDEX.  99 

PAGE 

St.  Joseph,  Mo 82 

St.  Louis,  Mo 28,  32,  44,  56,  61,  65,    66,  74,  80 

St.  Paul,  Minn 43,  56,  65,  74,  82,  88 

San  Antonio,  Tex 51,  81 

Sandusky,    O 48,  57 

San  Francisco,  Cal 36,  37,  55,  65,  66,  77 

Sault  Ste.  Marie,  Mich 82 

Seattle,  Wash 34,  90 

Shreveport,  La 41,  61,  79 

Sioux   City,   la 83 

Spokane,   Wash 35,   52,   69,   81,  84 

Springfield,  111 84 

Springfield,    0 48,    66,  80 

Syracuse,  N.  Y 33 

Taunton,  Mass 62 

Tipton,  Ind 67 

Utica,  N.  Y 36,  65,  77 

Vancouver,  Wash 83 

Waterville,  Me 63 

Webster  Groves,  Mo 62,  82,  89 

West  Chester,  Pa 50,  67 

West  Newton,  Mass 42 

Wichita,  Kan 59 

Wilmington,  Del 55,  78 

Winsted,  Conn 36 

Worcester,   Mass 82 

Youngstown,  0 48 


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